Article: Is Living on Top of a Costco the Answer to Affordable-Housing Crisis?

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A real-estate developer in Los Angeles is testing a new blueprint for affordable housing: stack apartments on top of a Costco.

Thrive Living is planning to begin construction in early 2025 on an 800-unit affordable-housing complex with the megaretailer on the ground floor in the Baldwin Village neighborhood of South Los Angeles. The project, which includes a rooftop pool and fitness center, would have 184 apartments for low-income households.

The property would be the first residential development in the U.S. with a built-in Costco, which is best known for its fiercely loyal customers who load up carts with everything from bulk pickles to gold bars. The rent that Costco Wholesale pays Thrive will help the developer rely less on government subsidies for the affordable housing, according to Thrive’s founder, Ben Shaoul.

If it works, Shaoul said he hopes to use the same tools elsewhere to create more affordable housing. “I want to build thousands and thousands of apartments every year, not hundreds,” said Shaoul, who also runs Magnum Real Estate Group, in New York.

The Baldwin Village location would give Costco access to a densely populated urban market as well as an automatic customer base in the apartments upstairs. Many residents might join the tens of millions of Costco members who pay fees to shop there.

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Target and Whole Foods have anchored apartment buildings to gain access to urban populations. Costco has been exploring different urban strategies for more than two decades and today owns dozens of downtown stores.

The Los Angeles development is a novel approach for Costco, which likes to own, not rent, its stores. At 185,000 square feet, the store would be just over the average size for the company. Thrive plans to have two levels of underground parking.

Baldwin Village is a lower-income pocket of Baldwin Hills, a mostly upscale, predominantly Black neighborhood of Los Angeles.

Dubbed the “Black Beverly Hills,” Baldwin Hills has been home to such celebrities as Tina Turner, Ray Charles and Lenny Kravitz. Median home prices in the neighborhood hover around $1 million, according to Redfin.

In contrast, Baldwin Village, where the new Costco apartment development is planned, has a poverty rate that is more than double the national average. The U.S. Treasury Department has classified the area’s economy as deeply distressed.

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For the Costco portion, Shaoul said Thrive is also exploring the use of New Markets Tax Credits, a government tax break to encourage private investment in distressed local economies. Thrive also bets that having Costco as a retail tenant could help attract additional investors.

The residential tower would be financed separately with a loan from a commercial bank or other source. Government subsidies wouldn’t be used to finance construction of the apartments. But once the property is open for lease, Thrive plans to join with the Housing Authority of the City of Los Angeles to provide rent vouchers to low-income tenants in at least 100 of the units.

Shaoul didn’t apply for traditional affordable-housing subsidies such as the federal Low-Income Housing Tax Credit because he said the process is burdensome and can delay projects. Federal tax credits, for example, require developers to comply with environmental-impact reviews, which can face a long approval process.

Construction is expected to finish in 2027. To build the apartments faster, Thrive plans to use off-site modular construction.

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