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• The County Wants to Purchase the Eureka K-Mart and Turn it Into a ‘One-Stop Permitting Center’

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A Bay Area commercial developer has reached a deal to sell Eureka’s vacant former Kmart property to mega-retailer Walmart, according to emails with city staff.

The emails, obtained through a California Public Records Act request, reveal that over the past year, current property owner McNellis Partners entertained a few different proposals for the eight-acre site, located at 4325 Broadway Street. The firm fielded interest from Tractor Supply Company, Alder Grove Charter School and the County of Humboldt before agreeing to a deal with Walmart.

The county, as we reported back in September, had hoped to retrofit the empty “Big K” warehouse, most recently home to cannabis company Papa & Barkley, into a collection of planning and building offices, creating a hub to serve as a “one-stop permitting center.”

Real estate developer John McNellis. | Image via LinkedIn.

But after agreeing to sell the property to the county for $5.75 million, McNellis Partners owner and principal John McNellis (pictured at right) suddenly and unexpectedly backed out of the deal, according to the emails we reviewed.

Shortly before noon on October 11, just three days before the Eureka Planning Commission was scheduled to conduct a conformance review for the acquisition, McNellis emailed county officials to say the deal was off.

“A retailing prospect has arisen for our property which, in our sincere belief, would be much better for the community as a whole than filling it with government offices,” his email said.

The Humboldt County Planning Commission was schedule to consider approving the sale the following week, but McNellis asked county staff to put its approval process on hold and remove the hearing from its meetings calendar. 

McNellis had emailed Eureka City Manager Miles Slattery just a few minutes earlier, revealing the identity of his retailing prospect.

“We came to terms with Walmart late yesterday afternoon,” McNellis wrote. He acknowledged that “it will be a long way from that handshake to a closing” and urged Slattery to keep the deal a secret.

“[W]ould you and your staff please please not mention that Walmart is our retailer prospect…until Walmart publicly files for its initial approvals[?],” he beseeched. “Walmart values its privacy and we have found that city approvals go much more smoothly if we identify our major tenants at the last possible moment. Every tenant has its detractors within communities.”

Indeed, Eureka residents have a history of resisting the world’s largest retailer. The Arkansas-based company wanted to build one of its megastores on the waterfront “Balloon Track” property, but a pitched public battle ended in defeat for Walmart when Eureka voters rejected a rezoning measure at the ballot box.

More than a decade later, Walmart managed to sneak through the backdoor of the Bayshore Mall, taking over a space that had been vacated by the Gottschalks. Its grand opening was celebrated by dancing mascots and blessed by a local priest.

The mall store is smaller than one of Walmart’s super-centers, and it’s unclear whether the company would keep that location if it opens a new one. Nor is it clear what Walmart has planned for the Kmart property, though emails reference the company’s desire to tear down the existing building.

In response to a request for comment to for this story, a Walmart spokesperson emailed the following non-statement: “We’re always looking for opportunities to better serve our customers and communities. We have no additional information to share at this time.”

McNellis has not responded to voicemails and emails from the Outpost.

Slattery, Eureka’s city manager, told us that the deal is still on, as far as he knows, though he noted that the due diligence period will be followed by an escrow period.

Other emails released by the city show McNellis consulting with Slattery regarding potential permitting issues. A portion of the property, including about 20 percent of the existing building, sits in the coastal zone. The city manager warned McNellis that any new development onsite could trigger extra review and permitting requirements from the California Coastal Commission. He recommended that Walmart rebuild in the existing Kmart footprint, rather than demolishing the old store to make way for a new one.

But Slattery later informed McNellis that he’d been mistaken: the property is categorically exempt from needing a coastal development permit [CDP] for principally permitted uses.

“Since a grocery store is principally permitted in your property’s zoning district, there would be no need for a CDP for demolition or construction for a grocery store,” Slattery informed McNellis in an October 10 email.

Does that mean Walmart plans to build a grocery store there, rather than one of its superstores? The company owns and operates dozens of so-called Walmart Neighborhood Markets across California, and Slattery’s emails repeatedly refer to plans for a grocery store. (When we spoke with him, he declined to address the company’s specific plans, instead referring us to McNellis.)

There may still be a few permitting hurdles if Walmart proceeds with its plans. Slattery explained to McNellis in an email that if the company chooses to construct a new building (or to remove more than 50 percent of the existing one in its renovations), then it would likely need to relocate parking to the side or behind the building, away from the coast. 

A new (or mostly new) building could also face discretionary design review, Slattery says, though in an October email he told McNellis that staff was working on an amendment to remove that requirement. That proposal would go to the city council for approval in three to four months’ time, he noted.

“If the property is developed in this manner as a grocery store, there would be no need for a CDP or other Planning permit at the discretion of a Board or Commission,” Slattery advised the developer. “The only requirement would be associated building permits.”