Business & Real Estate

Costco halts project in north Auburn

Steve Shaffer pushes his cart with groceries from the Costco Wholesale store in Sacramento off of Highway 160.
Steve Shaffer pushes his cart with groceries from the Costco Wholesale store in Sacramento off of Highway 160. Sacramento Bee file

Auburn-area residents looking forward to buying 60 eggs or a giant jar of pickles may be out of luck.

A proposal to bring a Costco store to north Auburn appears to be dead after the Washington state-based warehouse retailer abruptly terminated its ground lease with Placer County on Monday.

Without any warning, Costco faxed a letter to county officials to cancel its option to a ground lease on 16 acres in the Placer County Government Center. The one-page letter didn’t offer an explanation for the change of heart, merely asking the county to return $530,000 Costco previously paid as a deposit.

On Tuesday morning, Placer County officials were still digesting the decision, which has thrown their plans for redevelopment of the World War II-era site into disarray.

“It was a surprise to me,” said Mary Dietrich, facility services director for the county. “We’re still going to be speaking to Costco to find out more about their goals.”

PJ Faria, a Costco spokeswoman, declined comment, citing company policy.

The proposed 148,000-square-foot warehouse would have included 750 parking spaces and a gas station. The deal was expected to generate an estimated $18 million primarily in rent and tax revenue for the county over 20 years, according to Dietrich.

But the project had run into opposition early on from local residents and the city of Auburn, which sued the county last month alleging that the California Environmental Quality Act was not being followed.

“Costco is a sophisticated developer with an able counsel. I’m sure they saw what we saw,” Auburn City Attorney Michael Colantuono said.

Auburn officials had argued that the county had given “de facto” approval for the project by evicting tenants and planning demolition. Auburn leaders feared the project would bring traffic to city roads and take sales from small businesses. The planned site in unincorporated north Auburn is only a few miles from the city limits.

“We regret it was necessary to sue to get the county’s attention,” said Auburn Mayor Keith Nesbitt. “We weren’t necessarily against Costco. We were against the process.”

Several Placer County supervisors expressed hope that Costco would reconsider. Supervisor Jim Holmes, who represents the government center area, described the county and Costco as having a “working relationship.”

“We’re really not sure what this means,” Holmes said. “There was never any argument or pushback from Costco.”

Board of Supervisors Chairman Kirk Uhler didn’t blame Costco for walking away.

“They are being appropriately cautious given the threat of litigation by the city of Auburn,” Uhler said. “I certainly don’t fault Costco for making whatever decision is in their best business interests.”

Supervisor Jennifer Montgomery, the lone supervisor to vote against the project, viewed the termination as an opportunity.

“Frankly, the county does not live or die by one project,” said Montgomery, who opposed the contract because of the lack of annual rent increases.

The 20-year ground lease called for an annual rent payment of $325,000 with a 10 percent hike every decade.

The surprise decision by Costco to withdraw the project comes after several years of negotiations by the retailer to bring a store to the Auburn area. The location at the government center, off Highway 49, was considered ideal to draw residents from Grass Valley and the Placer foothills, whose closest store is in Roseville.

Costco officially signed the ground lease option with the county in December.

It remained unclear Tuesday whether the decision by Costco had any bearing on the future of the site, which is home to the Auburn Senior Center and a local arts group. The $530,000 deposit is in escrow and was intended to help the senior center move.

The county had planned to demolish the old buildings later this year. Dietrich wouldn’t say what would happen next.

“At this point, we’re just evaluating what our options are,” she said. “This has just come in hot off the press.”

Call The Bee’s Richard Chang at (916) 321-1018. Follow him on Twitter @RichardYChang.