Tri-Cities’ 2nd Costco isn’t official yet, but it’s shaping the future of Queensgate
Costco Wholesale has not finalized plans for a warehouse store at Richland’s Queensgate shopping district, but the prospect is starting to shape the area’s future in ways both large and small.
Costco is still actively negotiating with the Washington Department of Natural Resources to lease 28 acres at Kennedy Road and Truman Avenue, according to Kenny Ocker, spokesman for the state agency that owns the former orchard.
DNR and the city first disclosed Costco’s interest in June and talks are reportedly entering the final stage. There is no fixed deadline to complete the deal, Ocker said.
There is no guarantee a lease will be signed and a store built in Richland. Costco famously walked away from a deal that would have put a second Tri-Cities Costco store in Pasco’s Broadmoor area.
But the potential Costco at Queensgate is making itself known in a myriad of ways that are already influencing transportation plans and the types of businesses that locate in the area.
Costco would be built on a slice of the former orchard owned by DNR. The rest of the undeveloped site is available for commercial, residential and other uses.
Transportation impact
The Richland City Council voted 5-0 this week to raise its transportation impact fees (TIF) based in part on a case study involving an anonymous but thinly-veiled Costco store at Queensgate.
Transportation impact fees are paid by developers to offset the cost to accommodate new traffic.
Pete Rogalsky, public works director, described a “Large Retail Development,” to explain how the updated fees would ease development and provide money to upgrade key streets and intersections to accommodate it.
Rogalsky told the council the developer is finishing up a traffic impact study that aligns with the projects Richland says are needed for the area.
Since the new TIF program anticipates the store and its impacts, it will be much easier to scrutinize future building applications under the Washington State Environmental Policy Act or SEPA, he explained.
Had the council voted no, the unnamed project would have faced a lengthier review under SEPA. Road projects would take longer since the city would have to secure financing itself.
The new rates take effect Jan. 1, 2024.
A retail development would pay 63% of the cost to enhance the intersections where Duportail intersects with Queensgate and Kennedy. The city will be responsible for funding the remaining 37%.
Costco star power
Queensgate is one of the fastest growing retail and residential districts in the Tri-Cities. It’s already home to destination retailers including Target, Walmart, Home Depot and a constellation of smaller stores, restaurants, banks and other businesses.
A Costco store with its massive customer base will add to its shopping destination star power.
Commercial real estate brokers are already highlighting Costco as they market vacant spaces to would-be tenants.
In one telling example, a Seattle-based broker for builder Gretl Crawford, Kennewick’s mayor, incorrectly tagged the DNR site with a Costco logo and language that it was “under contract” in a vicinity map touting an unrelated retail property.
It was a simple error and swiftly corrected. But it showed how eager local property owners are to exploit their proximity to Costco.
Lance Bacon, managing broker with Kiemle Hagood, a commercial brokerage with an office in Kennewick, said the DNR property will bring plenty of new development. But Costco stands out as a destination.
A Costco store can’t help but influence the types of development that happen around it.
“It will have an impact,” he said.
Derrick Stricker, designated broker for Stricker Commercial Real Estate, said the anticipation of Costco at Queensgate is already huge. He isn’t involved with negotiations, but said Costco will only amplify one of the region’s most important retail corridors.
If it is built, he said, it could help bring in some of the retailers that are “missing” from Tri-Cities.
And if it isn’t built, Costco’s interest in the DNR property provides a road map for other prospective tenants who want to be in a solid retail zone.
“It is still a strong area,” he said.
Second store history
Costco Wholesale doesn’t comment on new locations until they’re ready to open, but it’s hunt for a second Tri-Cities location has been widely documented.
It currently has just one store in Kennewick to serve a local population of more than 316,000.
It’s attention turned to Richland after plans for Sandifur Parkway in west Pasco fell apart for reasons that have never been confirmed. In June, Costco submitted a letter of interest to DNR, offering to lease 28 acres at Queensgate. The property is part of the former orchard and was first marketed for development in 2020.
The letter of intent, made public to the Tri-City Herald under the Washington Public Records Act, sought a 25-year lease with extensions for 10, 5, 5, 5 and 5 years, for a total of 55 years.
The deal would pay $12.2 million in lease payments in the first 25 years. It would be subject to annual leasehold taxes, currently about $1.6 million based on the property’s $5.5 million assessed value.
Costco told DNR it would build and operate a membership warehouse club, including ancillary businesses, and a “last-mile” delivery facility, a gas station and associated parking.
DNR manages state-owned land for the benefit of public schools. State law generally prevents it from selling property, though Costco requested the right to buy if the law changes.
If the two sides reach a deal, the final terms will differ from the initial offer.
Transportation Impact Fees
Richland first considered raising its transportation impact fees (TIF) in early 2023. At the time, it proposed asking developers to cover nearly 85% of the roughly $122 million worth of projects citywide it says need to be completed.
Facing push-back from developers and home builders, it reconsidered the original schedule. It had a contractor review its work to ensure it complies with state law and revised some of the language.
The version approved on Dec. 5 requires developers to cover 78% of the cost of the transportation projects associated with serving them. The TIF program requires developers to pay the fee before they can receive permits to proceed with development.
Fees can be applied in four zones but not in central Richland.
Zone 1: $2,647 per vehicle generated by the project
This zone covers south Richland, generally the area south of the Yakima River and Interstate 182. The zone has 11 projects, including the stretch of Queensgate Drive between Keene Road and Shockley Road and the Queensgate Drive/Keene Road intersection.
Zone 2: $2,453
This zone covers the Queensgate area, including the proposed Costco property behind Vintner Square. The zone has 10 road improvement projects, including intersections along Duportail, the westbound ramps to I-182, Kingsgate Way and Queensgate Drive/Truman Avenue.
Zone 3: $4,951
This zone covers the Badger Mountain South area and has 19 projects. They include widening Dallas Road to four lanes, improving the I-182 ramps at Dallas Road, improving Bella Coola Lane at Copper Mountain Apartments and numerous intersection updates along Gage Boulevard.
Zone 4: $1,815.
This zone covers northwest Richland, generally west of the bypass highway. It has 10 projects, including updating the Highway 240 intersections at Logston Road, Village Parkway, Twin Bridges Road and Beardsley Road. It contemplates widening Highway 240 (aka the bypass highway)
Exemptions
Central Richland, including the Columbia River waterfront, is not part of the TIF program. Developers building qualified low income housing can apply for an exemption that waives 80% of the fee. Starting in 2025, the fees will be automatically tied to inflation, based on a “nationally published index.”
2 kinds of TIF
TIF can be confusing since it refers to two different mechanisms for funding infrastructure in Washington. Transportation impact fees and tax increment financing both are referred to as “TIF.”
That’s where the similarities end.
Impact fees are levied on developers as part of the building permit process.
Tax increment financing involves a few more steps. Governments issue bonds to pay for projects up front, then use the incremental increase on property taxes on the new development to repay the bond debt.
That financing was used to develop Pasco’s Reimann Industrial Center, where Darigold is building a $600 million milk processing plant, and for investing in new roads and utilities in the Kennewick’s growing Southridge area.
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