Salem Costco: State orders second look as PacTrust sues city for nearly $10 million

Costco Wholesale's southeast Salem relocation surged back into play Wednesday as the Oregon Land Use Board of Appeals ordered the city to reconsider its decision blocking the move.

At issue is whether the city has the right to block the project after developer PacTrust spent several million dollars on transportation improvements.

"It is possible that, if PacTrust is correct, a point about which we express no opinion, the city may not be able to apply site review criteria that would prohibit approval of the (project) application," the state appeals board noted.

PacTrust aimed to build a shopping center on what is now a grassy lot along Kuebler Boulevard SE with Costco as its centerpiece. PacTrust officials have said they'd already spent roughly $3.7 million toward the project, including widening Kuebler Boulevard SE.

"The city is evaluating LUBA's decision and the available options," City Attorney Dan Atchison said in a statement.

PacTrust also filed a lawsuit Wednesday against the city of Salem in federal court seeking at least $9,979,000. 

The court complaint stems from the December 2018 City Council decision blocking the development of an approximately 23-acre shopping center in southeast Salem, which was supposed to include a 168,550-square-foot Costco. The Kuebler Gateway Shopping Center also was to include four retail buildings and a fueling station.

According to the complaint, the city took PacTrust's vested property right without compensation by stopping developers from making use of the land for economic gain.

"The city denies the claims in the complaint," Atchison said in an email.

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"The complaint mischaracterizes the facts and law in this matter, and the city will vigorously defend itself," he said. "Council has been advised not to publicly comment on the matter given the pending litigation."

An attorney for PacTrust could not immediately be reached for comment.

Costco had planned to relocate to the southeast Salem lot from its current, roughly 143,000-square-foot building on Hawthorne Avenue SE, going as far as to list property for sale for nearly $11 million. Shoppers would have gotten a much larger Costco with the relocation.

In addition, figures disclosed in 2018 indicated Costco employed about 380 workers in Salem, with an annual payroll of roughly $9 million.

Neighbors fought to block PacTrust's project, however, arguing they were led to believe the shopping center would have a smaller draw than a Costco. A lawyer for the developers has said the potential for a Costco was publicly disclosed for a long time.

Councilors sided with the neighbors in a 5-3 vote in December, throwing the Costco relocation into disarray.

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Jonathan Bach has been a business and City Hall reporter with the Statesman Journal since 2016. To support his work, Subscribe to the Statesman Journal. Contact him by email at jbach@statesmanjournal.com, call (503) 399-6714 or follow him on Twitter @jonathanmbach.