Costco Bought the Shopping Center It Already Anchored

Kimco Realty sold Costco Plaza, a 195,473-square-foot retail center on more than 18 acres in Alhambra, California, to Costco Wholesale for $58.9 million, or roughly $301 per square foot, according to Yardi Matrix. It is the first time the six-building center has traded since it opened in 1990. Kimco remains the property manager.

Kimco's President and CIO described the assets as long-term, flat leases with very little embedded growth. That is a landlord publicly conceding that certainty and growth are different products, and that it would rather be paid for one and go buy the other.

Private capital pays a premium for flat, long, investment-grade cash flow. Institutional capital increasingly will not, because a flat lease across a decade of elevated construction and labor inflation is a real-terms decline dressed as stability.

Costco's motive is cleaner. Buying the fee eliminates renewal risk on a location it has occupied since 1990 and converts an operating expense into an owned asset at a moment when replacement cost for the same footprint is unrecoverable. Costco also bought an adjacent Kimco asset and properties it leases in Phoenix, Corona and San Diego.

The 1031 destination is the strategic tell. Kimco is not selling to raise cash. It is relocating basis into grocery-anchored centers with rent escalations and mark-to-market upside.

Implications: If you own single-tenant assets with flat rent and long duration, your best buyer may be your tenant, and your worst outcome is holding through a renewal you cannot mark up. Run the reverse test. Would the tenant buy this at your basis? If yes, you are holding an option you have already given away.