ESCONDIDO — Costco is one step closer to coming to Escondido after the City Council approved a ground lease with the company Aug. 12 for the former Sears site at North County Mall.
Under the new ground lease — which will last 20 years with seven five-year extension options — Costco Wholesale Corporation will pay $100,000 annually in base rent beginning once the store opens. In the meantime, the city won’t charge rent for the first 36 months of construction.
North County Mall is an 83-acre site at the southern end of Escondido near the East Via Rancho Parkway exit along Interstate 15. It consists of eight parcels, seven of which are owned by the city, including Parcel 1, where Costco is proposed.
Transformco was the previous lessee for the Sears store and held onto the lease for years while the building sat vacant.
In 2022, the city approved a new agreement for Costco to assume the lease from Transformco, but that action was never completed. In 2023, Costco backed out of its offer to take over the lease.
“There was a time when we thought Costco was gone,” said Councilmember Consuelo Martinez. “We’re just happy to have them back at the table.”
The new lease is contingent on terminating the current ground lease with Transformco.
Under the new lease, Costco is expected to make a “significant capital investment” to improve the site, including demolishing the existing vacant Sears store and constructing a new Costco building.
The lease states that if the site’s use changes or the lease is terminated, Costco will be responsible for remediating any and all environmental impacts related to a potential future Costco gas station at the site, including removal of its underground tanks and facilities.
If the lease interests are transferred to someone else in the future, the city would receive 1.25% of the transfer value.
City staff anticipates Costco will bring more than $2 million in annual sales tax revenue to the city, create more than 300 jobs and diversify the city’s sales tax base.
Deputy City Manager Chris McKinney said Costco will bring nearly half the tax revenue the city currently receives from its Auto Park businesses, comparable to tax revenue from downtown, and more than the tax revenue received from the rest of the mall.
Some have questioned why the city agreed to the lease before completing an environmental review. McKinney explained that Costco needs to have an interest in the lease before development applications and environmental review can begin.
Council members were mostly excited about Costco finally coming to Escondido.
“Costco is going to be the one thing that transforms the mall,” said Councilmember Judy Fitzgerald.
Fitzgerald also defended the proposed rent price, which some have questioned for being lower than market price.
“It’s because we don’t want to risk losing an opportunity like this to come to Escondido,” Fitzgerald said.
Although Mayor Dane White was also happy to see Costco move forward and supported the lease, he disagreed with Fitzgerald about the rent.
“I do feel like we could have gotten much more and that this deal is very one-sided,” White said, noting the deal was negotiated largely before the current City Council and from a “position of weakness” when the city didn’t have Measure I revenue.
While the community has generally expressed excitement about the store, a lot of work remains before it can open, a process that will take at least three years to complete.
“The lease is the first step, not the last,” McKinney said.
