Escondido's City Council voted 5-0 to approve a ground lease that would bring Costco into the long-vacant former Sears building at North County Mall, but the deal comes with a catch: the warehouse retailer has three years to decide whether it even wants the space, and the mayor says the city negotiated from a position of weakness.
The vote clears a major hurdle for a project that has dragged on for years. As reported by The San Diego Union-Tribune, the agreement depends on the dissolution of Transformco's current ground lease of the site, since Costco and Transformco previously failed to reach an agreement on the terms of transferring that lease. City staff projects the completed warehouse would generate more than $2 million annually in municipal sales tax revenue and create over 300 local jobs, according to The Coast News.
Under the terms outlined by the Union-Tribune, Costco would pay $100,000 per year in rent over 20 years, with an option to extend the lease for 35 additional years through seven five-year extensions. Councilmember Greg Oliver noted the lease includes exceptions during the first 36 months following construction entitlements, meaning the city could forgo $300,000 if Costco abandons the project after three years, or roughly $98,000 per year in rent during that window. Oliver questioned the three-year decision period but ultimately supported the project.
Mayor Says City Could Have Gotten More
Mayor Dane White, who described himself as a Costco customer, said he was excited for the retailer to become part of Escondido, but he did not hide his frustration with the terms. White said the agreement was negotiated from a position of weakness and described the deal as very one-sided, adding that the city could have received more rent from the arrangement. Still, White supported the lease agreement, explaining that the city previously felt pressure to fill the mall vacancy because it did not yet have Measure I in place.
That fiscal backdrop matters. Escondido voters passed Measure I in November 2024 with 61.1% approval, a 1-cent local sales tax increase that raised the city rate from 7.75% to 8.75% and generates about $28 million annually, according to the City of Escondido. Driven partly by those receipts, Escondido projected municipal budget surpluses for fiscal years 2025 through 2027, including a $7.1 million surplus in 2025, per KPBS. That improved financial position is part of why White suggested the city no longer needed to accept unfavorable terms just to land an anchor tenant, even as it ultimately did.
A Six-Year Vacancy at a Changing Mall
The former Sears building has sat empty since the store permanently closed in July 2020 amid parent company Transformco's nationwide liquidations, per the Escondido Times-Advocate. Councilmember Judy Fitzgerald said the mall needs an anchor store after the site sat vacant for years, and said Costco would transform the mall. Councilmember Christopher McKinney said the store would be a significant economic and city revenue driver if completed.
The path to Wednesday's vote has been anything but smooth. The council first approved a lease amendment in 2022 allowing Costco to take over the space from Transformco, but Costco halted that initial application in November 2023 after lease transfer negotiations stalled, before re-submitting modified master plan and fuel station applications in late 2025, per city planning records referenced by the Union-Tribune. Mike Thorne noted the current lease has terms similar to the previous one.
Environmental Duties and a Proposed Gas Station
Beyond the base rent, the newly approved ground lease entitles Escondido to 1.25% of the transfer value if Costco ever assigns its lease interest, according to the same Coast News report. A proposed gas station would be constructed at the former Sears site if the space's use changes, and Costco would be responsible for all environmental decontamination at that gas station if operations cease or the lease ends.
The land itself sits on a complicated footing. Unibail-Rodamco-Westfield sold its equity interest in North County Mall to Bridge Group Investments, now Mershops, and Steerpoint Capital in February 2023, but the City of Escondido retained direct municipal ownership of seven of the mall's eight ground parcels, according to Shopping Center Business. That municipal ownership is why the city holds direct authority over the former Sears ground lease at all.
North County Mall, located in Escondido off Interstate 15, originally opened in February 1986 as North County Fair, spanning 1.3 million square feet across an 83-acre property with six major department store anchors, according to Wikipedia. The mall has increasingly leaned on public uses to fill space in recent years; Escondido temporarily housed its Main Public Library operations inside 15,000 square feet of mall storefronts from spring 2025 through July 2026 during a $10 million downtown renovation, as Hoodline previously reported.
Costco did not respond to a request for comment from the Union-Tribune. The nearest operational Costco warehouses to Escondido sit roughly five miles away in San Marcos and further south in Poway, giving residents existing options while the city waits to see whether the retailer follows through on its three-year window to commit.
