Proposed Financial Terms with Costco Include Senior Center Contribution
March 07, 2014
The Placer County Board of Supervisors will review key financial terms Tuesday for a prospective ground lease agreement with Costco Wholesale Corp. that include a company contribution to help the Multi-Purpose Senior Center relocate.
If the proposed financial terms are approved by the Board, they will form the basis for negotiating a formal lease agreement for a 16-acre site at the County-owned Placer County Government Center. The site, zoned for commercial uses, is west of the North Auburn Home Depot store in the vicinity of Willow Creek Drive and First Street. Costco wants to develop a 148,000-square-foot warehouse store and fueling station there.
The key financial terms include a market-based annual rent of $325,000 for the first 10 years with 10 percent rent increases every 10 years. The proposed ground lease is for 20 years with three 10-year options to extend. In a report to the Board, staff estimates that net revenue from a Costco store would exceed $20.5 million over the life of the initial 20-year lease term.
Development of a Costco store would affect the Senior Center and nine private-sector tenants who lease County-owned buildings at the Government Center. In June 2013, County staff notified tenants of the proposed Costco project and the likelihood that their leases or occupancies would not be extended beyond early 2015.
The key financial terms include a Costco commitment to contribute up to $530,000 to cover Senior Center lease payments and tenant-improvement costs at a new site. The County and Costco also agree to help the Senior Center find a suitable location and assist in negotiating lease terms.
“The Senior Center Board is very grateful for the efforts of the Placer County staff and management in helping us move the Center forward and to a new location,” said President Eric Hill of the Senior Center’s Board of Directors. “This will eventually allow us to have a self-sustaining business model that does not rely on County assistance. Through the efforts of the County and the generosity of Costco, we should be able to move in this direction. We are very encouraged and grateful for all who are helping in this matter."
“Placer County recognizes the importance of the Senior Center and its services to the community. We are working hard to help the Senior Center find a new home, and are pleased with Costco’s willingness to join that effort,” County Executive Officer David Boesch said. “Change is inevitable, because the original buildings are more than 70 years old and beyond their useful lives. The proposed Costco project gives us an opportunity to continue economic development at the Government Center, and bring to the Auburn area a highly desirable business that will create jobs in the local community.”
In a report to the board, county staff notes that the County is working with other tenants affected by the project to assist their transitions from the Government Center. These efforts include providing advance notice of timelines, outreach to real estate professionals in the area, waiver of last-month rent to assist with moving costs and flexibility on move dates.
In 2011, Placer County was approached by Conkey Real Estate Development LLC with a proposal to develop a Costco store on the site. In November of that year, the Board of Supervisors approved an agreement that granted the development company an exclusive right to negotiate a lease option for the project. Since that time, the development company has completed numerous steps, including review of the site for use by Costco, evaluation of infrastructure and other development constraints, negotiation of lease terms, pre-development review of the project, negotiation of environmental review contracts, and submittal of project applications.
At Tuesday’s meeting, the Board will consider a proposed agreement with Conkey Real Estate that would end its intermediary role between the County and Costco. Under the agreement, the development company would be paid $150,000 for land development and negotiation services rendered so far and could earn additional compensation over several years if the proposed project achieves key development milestones, including the opening of a Costco store.
“As the project has progressed, Costco has expressed its need to play an active role in the environmental and entitlement process in order to manage timelines, expenses and potential project impacts and mitigations,” says County Facility Services Director Mary Dietrich in the staff report to Board members. The agreement with Conkey would enable the County and Costco to finalize negotiations directly with each other and allow Costco to directly lead its development process.
Originally called the DeWitt Center, the Government Center was built during World War II to serve as a hospital for injured soldiers and became a state mental hospital after the war. The state transferred ownership of the Center to the County in 1971 and approved legislation in 1978 that authorized use of the property by both public and private users and allowed the County to keep revenue raised by leasing activities at the Center.
Since that time, the County has developed the Center with many County uses, including the Community Development Resource Center, the Larry Oddo Finance Administration Building, the Auburn Justice Center, and the jail and juvenile hall facilities. Surplus buildings have been leased to private tenants and non-profit organizations. In 2006 the County entered into a ground lease with Home Depot. Because of the age and poor condition of the original buildings, many have been demolished.
“The Board of Supervisors’ consideration of the agreements with Conkey and Costco is another step in the transformation of the Government Center and, if approved, the project will bring another valued retailer to the Auburn area,” Dietrich said.
As the proposed Costco project proceeds through the review process, the public will have opportunities to comment on the lease agreement, the environmental review report and project entitlements. The project will be reviewed by the North Auburn Municipal Advisory Council, Planning Commission and Board of Supervisors. Tuesday’s Board meeting will take place at 9 a.m. in the County Administrative Center at 175 Fulweiler Ave. in Auburn.