Costco has abandoned the idea of opening a store at Bellevue’s Kelsey Creek Center, board chairman Jeff Brotman told a meeting of the Bellevue Breakfast Rotary Club recently.

Officials from the city of Bellevue have confirmed that the retail giant canceled is plans to build there. Kelsey Creek has been without a retail anchor since K-Mart moved out six years ago. Nearby residents have expressed a strong desire to see the vacant site redeveloped.

Plans are still in the works to open a Costco in Redmond.

Tracy Dunlap, director of finance and administration for the City of Kirkland, said Costco estimated that sales at the Kirkland store would have been reduced by a third with both the Redmond and Bellevue locations. The impact will now be less than that on Kirkland sales, but “it will still be a substantial reduction,” she added.

Bellevue’s zoning rules will require a costly uncovering of Kelsey Creek before redevelopment can occur at the site. The stream runs through a culvert underneath the property.

“I think it’s fair to say that surrounding neighborhoods are concerned about the current condition of the property,” said city of Bellevue Neighborhood Outreach Manager Cheryl Kuhn.

Past news articles indicated that Costco’s plans of building a 140,000-square-foot store would be very difficult with the city’s zoning rules.

The company applied in 2007 for zoning changes that would allow improvements to the culvert rather than removing it. The city is still reviewing that request and has taken no official action on it.

Kelsey Creek poses additional problems because of its surrounding soil, which is composed of peat. That type of surface would make for unstable stream banks once the culvert goes away.

“There are some real issues with daylighting a channel on a peat bog like this,” said city of Bellevue Planning Director Dan Stroh.

The city is studying possible alternatives that would achieve the same environmental and social benefits of uncovering the stream.

This could lead to changes in the zoning regulations that have made the Kelsey Creek property unattractive to developers.

The East Bellevue Community Council has been divided over whether the city should change its daylighting requirements, although the group historically leans toward finding alternatives.

The neighborhood group has veto power over new developments within its boundaries as a condition of annexation in 1969.

Joshua Hicks can be reached at jhicks@bellevuereporter.com or 425-453-4290, ext. 5052.