Downey council to consider $10.5 million agreement aimed at bringing Costco to city

Getty Images

DOWNEY — The Downey City Council on Tuesday will consider approving a development funding agreement intended to bring a Costco warehouse and gas station to Firestone Boulevard.

The agreement involves the city, Costco Wholesale Corp., Downey Nissan, Andrews Rancho del Norte and Andrews Rancho del Sur. It lays out a two-phase plan that would first relocate Downey Nissan to a new site across Firestone Boulevard, then clear the way for Costco to build on the former All American Home Center property and the current Downey Nissan site.

City staff is recommending the council approve the Master Development Funding Agreement, appropriate $10.5 million from the city’s General Fund Reserve and authorize the city manager to execute the agreement and related documents.

According to a staff report, Costco first notified the city in late 2022 of its interest in opening a warehouse and gas station in Downey. The proposed location includes the vacant former All American Home Center lot and the existing Downey Nissan dealership property, both owned by Andrews Rancho del Norte.

Because Downey Nissan currently occupies part of the land Costco wants to use, the dealership would move across Firestone Boulevard to a southern parcel owned by Andrews Rancho del Sur. That relocation would be the first phase of the project.

The second phase would be construction of the Costco warehouse and gas station.

The properties involved include a 13.59-acre north property proposed for Costco, a 5.1-acre south property proposed for the future Downey Nissan dealership, a 1.38-acre Nova Storage property expected to provide additional dealership parking and a Los Angeles Department of Water and Power property that could be used for future dealership parking if approved.

Under the financial framework, Andrews would contribute up to $1.6 million in site materials and cash toward improvements needed for the future Downey Nissan dealership. Andrews would also provide the Nova Storage property for dealership parking and pursue parking rights on the LADWP property.

Costco would enter into a ground lease for the north property and provide up to $20.8 million to fund construction of the new Downey Nissan dealership. That amount would include permitting, development impact fees and other hard and soft costs related to the dealership relocation.

The city’s financial participation would include a $10 million lease cancellation payment to Downey Nissan and an estimated $500,000 to cover environmental and entitlement review costs.

The city also would later consider separate sales tax-sharing agreements with Costco and Downey Nissan. The agreement calls for a future $3 million sales tax-sharing agreement with Costco, effective after a certificate of occupancy is issued for the Costco warehouse and gas station. A separate $2 million sales tax-sharing agreement with Downey Nissan would be effective after a certificate of occupancy is issued for the new dealership.

Those sales tax-sharing agreements would return to the City Council at future meetings.

City staff said the $10.5 million appropriation would come from the General Fund Economic Opportunities Reserve. The staff report says the city’s projected reserve position after the allocation at the end of fiscal year 2026-27 would be $22,972,965, which is more than $5 million above the Government Finance Officers Association’s recommended minimum reserve threshold of $17,902,041.

The city estimates the Costco project would increase sales tax revenue by more than $3 million annually. Staff said that new revenue would replenish the reserve allocation.

A Costco warehouse and gas station would expand the city’s tax base, generate construction and permanent jobs, and support long-term economic growth, according to the staff report. City staff also described Downey Nissan as a major economic anchor whose relocation is needed to allow both businesses to operate in the city.

If the council approves the agreement, city staff would begin the CEQA and entitlement process, which is expected to take 10 to 12 months. After that, construction of the new Downey Nissan dealership is expected to take about 12 months. Once the dealership is built and operating, construction of the Costco warehouse and gas station would begin and is also expected to take about 12 months.

The agreement would remain in effect for 180 days unless extended in writing by the parties.