How affordable housing deals could expand Costco's store count
In Baldwin Village, a five-acre lot that once held a shuttered hospital is now the site of an unusual bet on Los Angeles real estate.
Developer Thrive Living broke ground there in September 2024 on 800 apartments built directly above a Costco (COST) warehouse, the first project in the country to use the retailer as a residential anchor, according to Fox Business. That pairing breaks from decades of Costco's suburban, parking-lot-heavy playbook.
Why big-box retailers need housing partners to grow
Dense cities have little vacant land, and what exists is expensive. States have responded with laws that speed up approval for projects combining housing with retail, and California's AB 2011 is one of them.
The Los Angeles project qualified under that law, letting Thrive Living bypass a lengthy re-zoning fight. The $425 million development includes 184 units reserved for low-income households and is set to open in 2027, Fox Business reported, citing the Wall Street Journal.
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What this means for Costco's growth math
This is where the story shifts from a real estate anomaly to a compelling investment thesis.
Costco targets opening roughly 30 net new warehouses a year, supported by an estimated $6.5 billion in fiscal 2026 capital expenditures, according to a GuruFocus report.
By shifting to urban infill mixed-use formats, Costco is effectively optimizing its Return on Invested Capital (ROIC).
Buying land outright in dense metropolitan areas like Los Angeles or New York is often a capital-dilutive move due to astronomical property values.
In the Baldwin Village structure, the developer absorbs the primary development risk, allowing Costco to unlock premium demographic markets without choking its balance sheet with non-retail real estate assets.
This density also feeds Costco's primary profit engine: its membership model. High-density urban centers build a captive, organic customer acquisition funnel on day one, accelerating the high-margin recurring membership fee income that acts as Costco's financial bedrock.
This scalable pipeline underpins Wall Street's confidence, tracking neatly alongside a consensus annual EPS growth trend near 13%, based on TIKR's analysis.
That growth story has already drawn bullish analyst attention. With Costco shares trading around $918 in mid-July, Bernstein's recently upgraded price target of $1,194 implies significant upside. The firm also named the stock a top retail pick for the second half of 2026.
Even the broader Wall Street consensus target near $1,104 suggests analysts believe Costco has plenty of room to run, aided by these capital-efficient urban expansions.
Target is running a smaller, similar play
Target (TGT) opened a 44,000-square-foot store in Harlem inside the Urban League Empowerment Center, a $242 million project built around 171 affordable housing units.
The format is far smaller than a Costco warehouse, but the logic is the same: capture dense urban market share without the capital cost of a standalone store or buying premium city blocks.
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The timing lines up with Target's broader turnaround. New CEO Michael Fiddelke has targeted 30 new store openings and 130 remodels in 2026 as part of a plan to sharpen the retailer's assortment, based on Forbes' coverage of Target's strategy.
For investors evaluating operational efficiency, mixed-use partnerships give that expansion plan a lower-cost entry point into mature urban markets where traditional big-box builds would heavily drag down the company's margin profile.
Target's stock is trading near $135 and facing a cautious consensus "hold" rating from Wall Street, Barchart noted. Proving it can protect its profit margins while expanding into high-density neighborhoods is exactly the kind of fundamental execution that Target investors want to justify a breakout.
A model that's already scaling beyond one city
Costco is applying the same logic in Maryland, where it will anchor a 162,000-square-foot warehouse inside VIVA White Oak, a $2.8 billion, 280-acre mixed-use district near the FDA's Montgomery County headquarters, according to Bethesda Magazine.
The project is backed in part by a $4 million grant from the Maryland Department of Housing and Community Development and a newly approved tax-increment financing district, the outlet reported.
None of this makes urban expansion simple. Retailers still have to manage loading docks, security, and noise next to residential tenants, tradeoffs that add design cost even when land expenses fall.
But for investors, the final takeaway is the creation of a powerful regulatory and architectural moat.
Managing mixed-use friction requires specialized, highly complex design playbooks. The retailers that master these municipal zoning incentives early on will secure high-traffic urban footholds that competitors simply won't have the administrative or financial agility to replicate.
Costco and Target have found a way to keep adding stores in markets that used to be off-limits, unlocking a capital-efficient growth runway their competitors can't easily copy.
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This story was originally published July 13, 2026 at 4:37 PM.