Costco took a step toward its long-delayed plan to come to the North County Mall after the Escondido City Council voted 5-0 to approve a ground lease of the space with the grocery giant.
The retailer has three years to decide whether to move into the former home of Sears at the mall off Interstate 15.
Costco did not respond to a request for comment.
The city previously approved a lease amendment during a 2022 council meeting. That allowed Costco to take over the space from the current landlord, Transformco. However, the lease amendment was rendered moot after Costco and Transformco failed to come to an agreement on the terms of transfer.
The city’s current lease is dependent on the dissolution of Transformco’s current ground lease of the site.
“This store would be a very significant economic driver and city revenue driver if it is completed,” said Christopher McKinney, Escondido’s deputy city manager. “It would represent nearly half of the tax revenue that we receive from the Auto Park … it’s less than, but still comparable to the tax revenue we receive from economic activities downtown and it’s more than the tax revenue received from the rest of the mall site.”
The lease agreed upon at last week’s City Council meeting is new but the terms are similar to the previous one, according to Mike Thorne, communications manager for the city of Escondido.
The lease stipulates that Costco would be responsible for paying $100,000 per year in rent over 20 years, with exceptions for the first 36 months following entitlements for construction, and have the option to extend for an additional 35 years over seven, five-year extensions.
Costco would also be responsible for all environmental decontamination at the proposed gas station that will be constructed at the site should the use of the space change or the lease ends.
During public comment, community member Greg Oliver expressed his support for the Costco, but he questioned the three-year decision period.
“The terms of the agreement indicate that there is a three-year period before they actually have to decide to start building,” he said. “That is three years where we won’t be receiving $98,000 a year in rent and at the end, if they choose not to do anything, they have tied up the land for three years and we didn’t receive $300,000, I would think that there should be some term in there that if they choose to back out at the end that there would be some kind of penalty to compensate for the $300,000 we didn’t earn.”
As for the council, Councilmember Judy Fitzgerald raised the point of needing an “anchor store” at the mall after the former Sears site sat vacant for years.
“Costco is going to be the one thing that is going to transform the mall,” Fitzgerald said.
Mayor Dane White echoed support for the lease agreement, but during council member comments as well, stating that as a Costco customer he is excited for them to be part of the city.
However, he did raise concerns about the rent for the space, suggesting that the city could have received more.
“I do feel like we could have gotten much more and that this deal is very one-sided,” White said. “This was negotiated in large part before this City Council and kind of from a position of weakness. We didn’t have Measure I and needed that vacancy filled. Not to say that we don’t need it now, we do, but I just do think that we could have gotten more.”
In November 2024, Escondido voters approved Measure I, which implemented a 1-cent sales tax increase, raising the sales tax rate from 7.75% to 8.75%. The measure is projected to generate approximately $28 million in revenue annually over the next 20 years, according to the city’s website.