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Costco cancels purchase agreement for Duluth site

It remains unclear if the large retailer is still looking at other properties in the area.

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Costco no longer plans to build a massive 161,000-square-foot retail warehouse at the corner of West Arrowhead Road and Haines Road.

Dave Holappa of Holappa Commercial Real Estate confirmed that the much-anticipated arrival of the store is off, after Costco canceled a purchase agreement for the property earlier this week.

When asked if the company's decision seemed final, Holappa told the News Tribune: "I guess you never know, and we still hold out hope that maybe they'd reconsider at some point in the future. But for now, a cancellation agreement is in place. That's about as final as it gets in the real estate business."

Kate Van Daele, a public information officer for the city of Duluth, responded to questions about Costco's decision with a more optimistic statement:

"The city of Duluth worked for months to advocate with and for Costco and have enjoyed a very positive working relationship," she said. "We are proud to lead with our values of expectation that local financial investment on the part of the city yield specific local job creation. Together with Costco we found a great way to achieve this. We’re hopeful Costco chooses to revisit their decision and we’re ready to continue to work in support of them if they do."

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The project was fairly far along when Costco backed out. Van Daele said the company had even applied for construction permits.

The News Tribune contacted Costco's corporate headquarters in Seattle on Friday afternoon for comment, but the company said it would not respond to the request.

As for the obstacles to the sale, Holappa commented: "They had issues working through the city. There's no question about that. There were some other issues but they weren't totally insurmountable."

One apparent sticking point was the prospect of being required to enter into a project labor agreement.

"They'd been objecting to that for a number of months. There may have been a work-around on that. But I guess in the end, they chose not to pursue it," Holappa said.

"They didn't have any problem using union labor and that type of thing. But some of the requirements that the PLA includes — large corporations like that just don't want to give up control of their own developments," he said.

Craig Olson, president of the Duluth Building and Construction Trades Council, said he was "floored" by the news that Costco was pulling out of the deal.

"We are very disappointed by their decision. We hope that they think this out a little bit further," he said.

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"The mayor, city staff and even the attorneys were working diligently and hard. The trades made it very clear. We were not going to be any barrier for this development. So, I am completely shocked by what we're hearing today. If they didn't like something in the PLA, I sure don't know what they're talking about. We were prepared to do what it took," Olson said.

Construction costs arose as yet another concern.

"The cost to build came in way over budget, and that they determined was largely due to the significant construction projects that are scheduled to go on in Duluth right now," Holappa said. "So, supply and demand being what it is, it was really going to be expensive, too."

Olson said he believes Costco has a backup plan involving another site outside of Duluth and questioned whether difficulties with the city or the trades were really to blame for the company's change of course.

"The city has done everything it could to bend over backwards. We want to see this in Duluth. Whether there's a PLA or not has no bearing on it. None," he said.

This story was updated at 5 p.m. March 28 with comments from Craig Olson, president of the Duluth Building and Construction Trades Council. It was originally posted at 2:30 p.m. March 28.

Related Topics: RETAILREAL ESTATE
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