Why Did Costco Withdraw from Guilford?
Many of you have asked us why Costco withdrew its application to build a big box store on the Rock Pile at Exit 57, even before the hearings began. The simple answer is, we don’t know. As the press has reported, Costco’s representatives have not responded to requests for information, so the final reasons may never be truly known to this community.
Nevertheless, questions remain, and we want to share with you what we learned in the process of preparing our opposition to Costco’s application for five amendments to the zoning code for the Rock Pile (technically called Service Center West Zone). Specifically, we want to share what we learned about the difficulties any developer would face in using the site for a big box store.
Discussing the reasons for Costco’s withdrawal can contribute to understanding the kinds of development that will work on that site, and what kinds are best for Guilford.
GCRD’s Research Questions
Much of the ongoing research we were doing was never released because it was being prepared for the hearings, and we believe that it can used as part of a broader and rational economic planning process for the town. It is also important for citizens groups here and elsewhere to understand what kinds of development strategies are effective in what kinds of circumstances.
Though many of Costco’s supporters argued that anyone who opposed the proposed store was anti-business, we felt differently. Many of the key members of our group are business people and/or have served on committees and commissions that have recommended development in our town. From our perspective, this was a business deal. DDR/Costco made a business proposal to the town—probably the largest single business deal ever proposed here, with far-reaching and long-term implications.
While some people in town jumped at the opportunity quickly, we felt that a truly businesslike approach required examining the proposal closely, looking under the hood and conducting proper due diligence. Just as no business person would buy a business based on the initial claims of the seller (no matter how much they might like the seller!), we felt that making major changes in Guilford’s long-standing and popular zoning regulations required proper analysis of Costco’s claims, particularly in light of the fact that those zoning regulations were arrived at after a long period of intensive study and extensive citizen participation. Our efforts had nothing to do with Costco per se; they had everything to do with independently evaluating the company’s assertions and the implications of a major shift in Town policy.
We expected that serious research would identify some problems because even the best business deals have problems. After all, there is no such thing as a free lunch, and every business person knows there is no such thing as a business deal without costs. But there are good deals and bad deals. The question that we asked ourselves in this case was, “How much benefit versus how much cost?” We were frankly surprised at the number and scale of problems and costs that became evident, even in our first cursory surveys of available information. And the deeper we looked, the more significant those problems appeared, and the more disturbing the implications became.
As the process unfolded, more and more Guilford citizens with extraordinary expertise came forward to help, including residents with extensive experience in traffic planning, taxes and finance, real estate development, website development, engineering, marketing, city planning, computer modeling and statistical analysis, graphic design, and architecture. And the more we learned, the more questions were raised, not only about whether a Costco big box store on the Rock Pile would be good for Guilford, but also about whether the Costco team had adequately evaluated the appropriateness of the site for Costco.
And over time, the data that Costco’s agents presented about traffic, taxes, costs and even their own projected finances for the project seemed questionable.
It is important to emphasize that GCRD and its supporters were completely committed to finding the relevant facts that could lead to an informed decision. Our original steering committee was composed of professional people with backgrounds in banking, real estate, city planning, the sciences, medicine, education, and public policy. Reputation and integrity were important to us, so we did not want to release information before it had been properly vetted. For example, in doing our tax analysis, we left no stone unturned in seeking valid evidence for Costco’s claims regarding the tax revenues the town would realize if their plan was approved.
And now, as we finish up and release the research reports we had been working on in preparation for the PZC hearings, you will see that our methods, calculations, and evidence are fully documented. Over the next few weeks we will summarize our findings in some final e-mails to you, and we will post our detailed reports on our website as PDFs for anyone to download.
Possible Reasons
What follows is a summary of five potential problems faced by Costco in placing a big box store at the Rock Pile, problems that may well have contributed to their decision to withdraw:
1. Suitability of the Site.
Costco’s decision to withdraw was posted on its Costco 4 Guilford Facebook page:
In recent weeks our team at Costco has completed additional work in anticipation of filing a detailed site plan application for its project at the Rockpile. During the course of these efforts, it became apparent that the development as proposed would not be readily achievable. For these reasons, we have decided to withdraw our application for the zoning text amendment.
In a live quarterly webcast to investors in October, 2010, Richard Galanti, Costco’s Chief Financial Officer, explained that the company’s policy on expansion was increasingly focused on standardizing new facilities and finding sites free of complication and excessive costs. This intention seems at odds with the company’s application for the Guilford Rock Pile, regardless of any initiatives by GCRD and other community groups.
Based on DDR’s application for construction, our team estimated that DDR had already spent $5 million to $6 million on blasting the solid rock ledge in order to make the site suitable for development. However, that work is far from complete, and DDR, which is in financially stretched with unfinished projects across the country (and internationally) due to bursting of the real estate bubble in 2008, is very unlikely to finance the remaining work on their own.
So while DDR was no doubt seeking to recover as much of its investment as possible in a deal with Costco, we think those negotiations would have been difficult because Costco’s own tax calculations presented to local organizations indicated that Costco would still need to spend $5 million or more to make the site suitable for construction of a big box store. Remember, big box economics are based on building cheaply and minimizing taxable capital expenditures.
It seemed to us that in any true assessment of property value, most of those millions of dollars would have to be considered sunk costs (lost by the payers), because the net effect would have been only to bring a previously unusable site up to the standards of a more typical piece of land that doesn’t require major expenditures to be buildable.
This problem of site preparation costs is further complicated by another recent Costco national policy of not building any more stores without gasoline stations. Installing a 12-pump station in solid rock would have been another extraordinary expense and most likely would also have raised a new set of significant environmental issues that would have to have been addressed. So these problems, inherent to the unfinished Rock Pile site, made Costco’s proposal for a big box store of questionable economic suitability from the outset.
2. Traffic Issues.
GCRD’s team identified a series of potentially serious traffic problems with the Costco proposal, and these problems were not adequately addressed by the traffic study (prepared by BL Companies) that Costco submitted to the Town in anticipation of its application for zoning changes.
These traffic problems are discussed in more detail in our report. But we have been able to document our assertion that the store would have generated approximately 3 million car trips per year (11,000 trips on a typical Saturday). The severe environmental and infrastructure limitations of Route 1 at Exit 57 mean that that volume of traffic could not have been accommodated at the Rock Pile location. The two-lane underpass just east of the site cannot be widened but would have to have accommodated at least half of the 3 million trips per year. And the congestion caused by the proposed plan would have affected the entire Route 1 corridor as well as a dozen local feeder roads.
In addition, our team also identified serious shortcomings in the Costco traffic study.
As was reported in the New Haven and local press, in anticipation of the hearings, the Town followed standard procedure for applications of this scale and sought an independent peer review of Costco’s traffic report. The independent review and its conclusions, which were turned in to the town’s planning department just prior to Costco’s withdrawal, identified issues similar to those GCRD had discovered while conducting its own evaluation. Essentially, the independent review said that the Costco study did not contain adequate information about either Guilford’s actual traffic patterns or the traffic generation of actual Costco stores. Instead, the Costco study relied on generic computer models and traffic estimates based on smaller warehouse stores. It questioned why actual data from the company’s Milford store was not used, and it indicated that the plan based on the data may not have been adequate to manage the volume of traffic generated.
Traffic would not only back up onto Route 1 but would also not be able to exit the store parking lot at peak periods. This would have made it difficult for emergency vehicles to get in and out and for delivery trucks to turn around in the parking lot. The obvious implication is that customers would also have had long waits to get out of the store. It said that a second point of access and egress would be necessary for managing the traffic, and this was consistent with GCRD’s findings. Other Costco stores are located on much larger roads, and many have multiple points of access. In Milford, where Route 1 is four lanes plus two considerable turn lanes, traffic still backs up outside the property. The severe constraints of the Rock Pile site make it impractical, if not impossible, to add a second point of access.
3. The Resident Petition.
Connecticut state law governing municipal zoning regulations allows for redress by property owners who are likely to be most affected by changes to municipal zoning. Specifically, the law allows that if the owners of at least 20% of the land within 500 feet of the property under consideration sign a petition, they can require that any zoning changes be approved with more than a simple majority of the local planning and zoning commission. In this case, a vote to approve the changes requested by Costco would require 5 out of 7 commissioners to vote in favor. A few days prior to Costco’s withdrawal, an independent organization of property owners within the specified area defined by law surpassed the threshold needed to require the supra-majority vote by the commission. Though this achievement had not yet been made public, and no one can know how individual commissioners would have voted at the end of a lengthy and detailed hearing process, Costco representatives may well have learned about the petition and concluded that it made approval of their proposal too difficult.
4. Public Opinion.
Costco is a company that appears to care a great deal about its brand and reputation, and it was apparent that Guilford public opinion in opposition to its application was strong and growing. As GCRD shared our research findings with the community through our e-mails, website, Facebook page, Tweets, slide presentations, and video productions, public opinion began to change and more and more people became involved. The response to our communications was extraordinary and exceeded our expectations. For example:
o The number of people voluntarily receiving GCRD’s e-mail newsletters on the subject exceeded 600 households
o More than 5,000 people visited our website, and the rate of visits was growing as the hearing approached. The same was true for our Facebook page.
o The neighbors’ petition was signed by more than 90% of the residential property owners in the specified area.
o More than 25 merchants signed a petition to the town requesting that the zoning not be changed
o Other groups of merchants, neighborhood residents, and parents were forming and taking action independent of GCRD’s initiatives.
o The Guilford Planning and Zoning commission received over 300 letters, more than 200 of which were in opposition to any change in the regulations that would permit a big box development.
o Newspapers reported that the number of letters against the changes in the zoning regulations to allow for a big box store was much higher than the number in support.
o When GCRD needed funds to pay for legal and professional assistance, more than 65 people responded with more than $11,000 in ten days (all unspent funds have now been returned to the donors).
It is possible that the company may not have wanted to continue with a highly visible public hearing and debate process involving disclosure of accurate information about tax dollars, costs and traffic.
5. Concerns Over Litigation.
Some town officials believe that concerns over possible litigation by GCRD may have contributed to the company’s decision to withdraw, even though GCRD had no plans to litigate. Our organization hired legal counsel with the sole intention of ensuring that both GCRD and the applicants carried out the process properly. It is important to remember that unlike DDR’s original proposal for Guilford Commons, the Costco proposal required 5 major changes in Guilford’s zoning regulations. GCRD and our professional advisors believed that these changes stood in direct conflict with the intent and letter of the town’s long-standing plans. And this could have made an approval subject to possible litigation by neighbors or any other groups in town. GCRD was only one of several groups to consult legal counsel related to this issue.
In the end, it is also possible that, given the obstacles to approval of developing a big box on the site, Costco felt it might have felt the risks of litigation were too high, but that is only speculation.
What’s Next:
Over the next few weeks, we will share with you more of what we learned from participating in this extraordinary democratic process that unfolded in our community. Our next email will summarize the factual analyses our team assembled on Taxes, Costs and economic impacts of a big box store in Guilford.
Guilford Citizens for Responsible Development 