A plan to build a new Safeway grocery store and 253 apartments on Outer Mission Street in the Excelsior neighborhood is dead after the supermarket chain and the property owner were unable to reach a deal.

The development was part of a two-parcel project and would have transformed a stretch of Mission Street that suffers from the highest retail vacancy rate in the city and has seen very little development during the economic boom.

Under the failed deal, Bridge Housing would have constructed 175 units of affordable housing, a health center and the new Safeway on the site of the Valente Marini Perata & Co. funeral-home site at 4840 Mission St. Next door, on the site of an existing Safeway at 4950 Mission St., the developer Emerald Fund would have constructed 253 units of market-rate housing over a strip of retail on land owned by the National Electrical Benefit Fund union pension fund.

Emerald Fund Chairman Oz Erickson said, “It proved difficult to negotiate an agreement that worked for both Safeway and for the project.

“We are very disappointed,” he said.

Bridge Housing said it will go forward with an affordable project at the funeral home site, as well as space for the Mission Neighborhood Health Center, which had agreed to lease 10,000 square feet on the ground floor of the building. But the affordable project might need to be downsized. Bridge Housing noted that funding for 72 of its 175 affordable units was being provided by Emerald Fund. That money will no longer be available.

A Bridge spokeswoman said the developer is working with city officials to redesign the project and figure out how it will be financed.

“With Safeway and Emerald Fund no longer involved, we’re looking at creative ways to maximize affordable housing on the site,” said Bridge spokeswoman Lyn Hikida. “We understand the dire need for affordable housing in the Excelsior, and we value the community input we’ve received to date.”

Supervisor Ahsha Safaí, who represents the neighborhood, blamed Safeway for the failed negotiations, saying the supermarket company repeatedly sought to renegotiate the terms.

“We negotiated a deal with 41 percent affordable (housing) and a beautiful grocery store and health center,” Safaí said. “Unfortunately, Safeway has reneged on their portion of the deal.”

Even though many Excelsior residents embraced the idea of a new Safeway, health center and affordable housing, some neighbors opposed the market-rate portion of the complex, contending that it would bring the kind of luxury housing and expensive retail that have gentrified areas like the Mission District.

In April, the economic and environmental justice advocacy group PODER held a protest at the existing Safeway, holding posters that read “The Safeway Sellouts” and “Fight for Our Home.” At that protest, PODER organizer Inkza Angeles said, “Safeway is the proposed site of market-rate housing, which we are not going to be able to afford.”

Safaí said that the protests were not a factor in Safeway’s decision to back out.

“Community opposition had nothing to do with it,” said Safaí. “This was purely Safeway continuously moving the ball in negotiations. This was all about Safeway’s bottom line and them going back on their word.”

Safeway was asking for five years of free rent, according to sources familiar with negotiations.

In a statement, the supermarket chain said, “Safeway has been proudly serving San Francisco since 1926 and we look forward to continue serving the Excelsior neighborhood. Safeway is a tenant with a long-term lease in this location and the future of the property is determined by the property owner.”

The failed Safeway deal underscores a particular frustration of San Francisco planners as they try to build enough housing to put a dent in the housing crisis. Safeway is a tenant at several prime development sites in the city, including Market and Church streets and the Potrero Center at 16th and Bryant streets.

The supermarket, which generally has long-term leases with provisions giving it power to block developments on those sites, generally has not been interested in being part of mixed-use developments that include housing.

Safaí said that while he is disappointed that the Safeway development isn’t going forward, he will focus on the Bridge Housing project, as well as other projects nearby like 915 Cayuga Ave., 65 Ocean Ave. and the Upper Yard next to the Balboa Park BART Station. Those three projects total about 350 units.

Sergio Piña, owner of El Corazon Gallery, a furniture store across the street from the Safeway, said he had mixed feelings about the new store and market-rate apartments not going forward.

“That Safeway is one of the worst Safeways I have seen — there is a lot of crime and drunks,” Piña said. “And for my furniture business it would be good because it would bring a lot of new customers. On the other hand, a lot of the apartments they want to build, nobody around here qualifies for them.”

He said he hopes that at the very least, Safeway will renovate its store.

“The Safeway has to do something — I can show you videos with people running away with meat under their pants and the guards coming after them and fighting them for the meat,” he said. “It’s not a good situation.”

Former Supervisor John Avalos, who worked with Bridge Housing on a previous version of the plan that didn’t include the Safeway parcel, said, “They should go back to the original plan.

“It was a great plan that the community worked about eight years on,” Avalos said. “Let’s bring it back.”

J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen