A proposal by Spokane City Councilman Steve Eugster to move City Hall temporarily to the vacant former Costco Wholesale Corp. store east of downtown has put a public spotlight on the cavernous warehouse structure.

Commercial real estate agents here say, though, that they don’t think the proposal makes good financial sense. The proposal was scheduled to be considered by the council’s public works committee earlier this week, but Eugster says Council President Rob Higgins and Councilman Al French, who serve on the committee with him, declined to take up the matter, leaving it essentially a dead issue for now.

Meanwhile, there’s been no public hint of any other hot prospects for filling the 130,000-square-foot building at 800 E. Third, which has been vacant for 15 months, causing some surrounding businesses to experience a decline in customers.

“We’ve seen a drastic drop-off,” says Ken Anderson, general manager of the 105-room Shilo Hotel, at 923 E. Third, which employs more than 100 people and had catered for years to a steady stream of out-of-town Costco shoppers and vendors.

Costco’s departure hasn’t been all bad, though, he says, because it has forced the hotel to adopt a more balanced marketing approach, going after more military, corporate, and health-care volume-discount contract business.

“This has given us an opportunity to grow,” Anderson says. “We’re not relying on one particular business to support ours.”

His upbeat comments notwithstanding, the combination of the hotel’s decline in business and a Chapter 11 bankruptcy reorganization filing by its Portland-based parent company, Shilo Management Corp., has spawned rumors that the hotel here will close. Anderson denied the rumor during an interview last week, but the Associated Press reported Friday the Spokane hotel is among eight hotels that Shilo Management has put up for sale.

Representatives of other retail businesses along Third also have mixed feelings about the loss of Costco, mostly similar to those voiced by Dave Larsen, owner of Larsen’s Clock Center, at 953 E. Third.

“Our store is somewhat of a destination store,” Larsen says. “I’m going to have to say we’ve lost a little walk-in traffic, but it hasn’t affected us that much. It’s kind of nice not to have these thousands and thousands of cars roaring by here. In one respect, I wish they would never have moved, but in another respect, it’s a big relief.”

Shilo’s Anderson says, “We’d like to see a business or government entity go in there, but not just for a short term. That would help the entire neighborhood, which needs revitalization.”

Eugster’s idea of moving City Hall to the former Costco building on an interim basis was part of a broader proposal to sell the current City Hall building, a seven-story, 156,000-square-foot structure at 808 W. Spokane Falls Blvd., and construct or lease a new City Hall across the Spokane River near the Spokane County Courthouse. He also proposed that the study look into the “immediate commencement” of construction on a long-proposed city operations complex in the Garry Park neighborhood.

Eugster argues that the City Hall building is inefficient and that its sale could have a number of benefits, including providing funding for the other projects and opening up more potential office and retail space near River Park Square. Also, moving City Hall near the courthouse “would encourage and possibly ‘jump start’ residential development” of the large, undeveloped Summit property there, his resolution says.

The Spokane City Council voted 5-2 last month to have its public works committee study the proposal and make a recommendation on it to the council. However, Higgins, who along with Councilwoman Roberta Greene voted against studying the proposal, says, “It’s the most ludicrous thing that could have ever been thought of. First of all, City Hall isn’t for sale, and second of all, you wouldn’t want to move it there (the former Costco building). So it’s a no-brainer to start with.”

Eugster disagrees, saying he thinks City Hall functions could be moved there at low cost and with no remodeling by relocating current City Hall office modular units there. Regarding his broader proposal, he says, “It was a way of trying to get a whole slug of activity going without having to pass a bond issue.”

Costco moved out of the building on Third in February 2001, when it opened a new, larger store at 5601 E. Sprague, but its lease of the old building doesn’t expire until the end of 2008. The big Issaquah, Wash.-based membership warehouse chain sought initially to find an interested tenant willing to sublease the building, then tried unsuccessfully early last year to buy the property from owner Kip Paulsen Sr., of Palm Springs, Calif., and since then has been searching again for a sublessee.

Nat Williams, an independent marketing consultant here, developed a conceptual plan—with help from Kyle D. BrinJones, of The Terra Firm, who was the listing agent for the Costco building for nearly 18 months—for turning the structure into a multi-use facility called the Spokane Business Center.

Williams envisions remodeling the building to accommodate a mix of tenants that might include small technology companies, advertising agencies, attorneys, accountants, medical professionals, restaurants, and a dry cleaner, according to an Internet Web site, www.thespokanebusinesscenter.com, set up to promote the project. His vision for the building also calls for shared conference facilities and a central court with fountain and skylights.

Such a remodeling project, though, including creating storefronts along the north side of the building facing Third, would cost an estimated $9 million to $12 million. Funding and tenant commitments for the business-mall proposal have yet to materialize, and BrinJones says the chances of the project happening are “slim to none.”

Tracy Lucas, a Kiemle & Hagood Co. commercial real estate agent who along with his brother, Mark, now is listing the Costco building, declines to discuss the property. However, the Journal has learned through other real estate sources that Costco’s current asking price of about $22,000 a month “triple-net” to sublease the building is down sharply from the amount it was seeking originally. Triple-net means that the tenant pays all ongoing operating costs, including taxes, utilities, insurance, and repairs.

BrinJones, in comments echoed by several other commercial real estate specialists and Higgins, says the millions of dollars the city would have to spend to convert the building for office use couldn’t be recouped in a temporary occupancy of, say, three to five years.

“I just can’t see where there’s any upside for the city in doing that. There’s just no way to make it ‘pencil.’ There has to be a (relatively long) period of time during which it can amortize those improvements,” he says.

Likewise, most of those interviewed agree the current City Hall is in a great location and could have strong appeal to investors as a professional office building. However, they say that—without a good-sized anchor tenant either already occupying space there or prepared to move in—its potential selling price on the open market would be diminished.