Costco Wholesale Corp. told investors Tuesday that its unprecedented foray into building affordable apartments in South Los Angeles is simply a necessary zoning loophole to secure 150,000 square feet of commercial space for bulk paper towels.
Big-box competitors including Target and Walmart have increasingly pitched themselves as partners in the urban housing crisis, quietly acknowledging that desperate city councils will approve virtually any massive retail footprint if a residential complex is stapled to the roof. The strategy allows the companies to override decades of strict urban planning laws by rebranding their sprawling concrete warehouses as critical public infrastructure.
We have absolutely no interest in urban planning or poverty alleviation, but if stacking 800 human beings on top of a bakery is the only way the city will let us sell kayaks downtown, the math still works out.
Wall Street has responded warmly to the guidance. A Tuesday analyst note from BlackRock praised the synergies of the real estate model, observing that the subsidized tenants effectively serve as a captive market for Kirkland Signature household goods while returning a portion of their government housing assistance directly to the retailer's grocery department.
Target executives confirmed a similar strategy in their own forward guidance, noting they had successfully secured a permit for a massive Manhattan location by agreeing to house three low-income families in a designated zone near the seasonal patio furniture.