'A combination of options': Retail, mixed-use space possible for former Kmart property

Michaela Harris, Appeal-Democrat, Marysville, Calif.
·3 min read

Aug. 9—The Sutter County Real Estate Committee discussed including commercial retail space in its plans to reutilize the former Kmart building.

During a meeting on Monday, the committee analyzed development options submitted by Turton Commercial Real Estate for the 850 Gray Ave. property in Yuba City.

Sutter County Administrator Steve Smith said that the committee will continue with its plans to use the property as a new, singular headquarters for Sutter County Health and Human Services. However, the development options featured during Monday's meeting suggest adding additional retail or mixed-use pads to the existing space.

The committee's initial plans to transfer Health and Human Services to the Gray Avenue property were halted due to a significant rise in renovation costs, Smith said. What was originally quoted as a $37 million project became $80 million by the beginning of the COVID-19 pandemic.

"During COVID, the cost of the project doubled and then some. We were initially looking at remodeling and constructing about 80,000 square feet of the 120,000 square foot building, but with those costs, we had to reevaluate. Thankfully, with the increase in value with the property, it looks like we have a combination of options. We can still build, likely, a smaller facility on that land and have a developer do the rest whether it's retail or mixed-use, retail and residential," Smith said.

Ken Turton, president of Turton Commercial Real Estate, presented four development plans for the property to determine the viability of added retail or fast food operations. He said that the plans were not meant to serve as a recommendation for which action to take, but as an assessment of the committee's available options going forward.

According to a market overview report, the first development plan includes maintaining the existing building and constructing a new retail property on the corner of Gray Avenue and Louise Avenue. The remaining plans suggest demolishing 85,000 square feet of the building while reserving a portion of the structure, splitting the lot, dividing two parcels into four and selling selected parcels.

The county may still face obstacles when attempting to include the added retail space. When Sutter County bought the Gray Avenue property, it was financed with a tax-exempt note to get a "favorable financing rate," Assistant County Administrator Leanne Link said. Interest proceeds are not subject to federal income tax.

"The limiting factor for us is the tax-exempt financing. The board may want to consider taking money out, which we have substantial funds committed for future capital projects. We could take the balance due on the note which is somewhere around $6 million and completely pay off that note. The down side for that note is that it's very low interest so we're not going to get a low interest, but it would release us from the covenants of the tax-exempt financing of which we're maxed out," Link said.

Because of its tax-exempt financing, private commercial use is limited to 95% of the square footage. Before allowing additional commercial use, the county must either refinance the property or pay off the existing financing, she said.

"When the county purchased the building for $8.24 million in 2021, we only financed $6.725 million of the purchase, which allowed us to meet the 95% threshold. Until we pay down or pay off the financing, we cannot allow any additional commercial use without jeopardizing the tax exempt status and our own credit worthiness," she said in an email to the Appeal.

Mike Ziegenmeyer, committee member and Sutter County Supervisor for District 3, said that he is in favor of maintaining the building and constructing additional retail pads.

"It sounds like the positive is in option one with two to three pads. We still own a portion of the property and the future building with possible residual income coming in with a tax agreement plan with the city of Yuba City on the possible two to three parcels," Ziegenmeyer said.