Coastal Redevelopment
Tallen & Keshen Holdings is developing the first Wal-Mart-anchored center on the Monterey Peninsula.
Jennifer Orr

Tallen & Keshen Holdings took a vacant, under-utilized center adjacent to the California coastline, and transformed it into a Wal-Mart-anchored center.

Tallen & Keshen Holdings, a development company with offices in San Francisco and Los Angeles, specializes in the development and redevelopment of retail properties in underserved communities, urban locations and high growth corridors — creating value-creation strategies that meet community needs and the location objectives of its long-standing retailer relationships.

Tallen & Keshen Holdings’ value-creation play and successful development efforts in a California coastal community with significant barriers to entry, is noteworthy. For 5 years, the former Kmart located in Marina Landing Shopping Center, a 100,000-square-foot property located on California’s Monterey Peninsula, had remained closed, with the windows dark and the parking lot empty. The last sign of activity at the center was Kmart’s departure in 2000. The center had no shoppers, no property improvements, and no prospective new tenants. Several well known developers and other interested parties had attempted to acquire the property after Kmart went dark and the property was held in a sale portfolio of closed Kmart properties managed by Wachovia Bank. However, no group was ultimately able to make sense of the Marina project until Tallen & Keshen Holdings stepped in. From 2000 until 2005, Marina Landing Shopping Center languished, depriving the city of Marina of both jobs and tax revenue.

In becoming acquainted with the city of Marina, Tallen & Keshen principals, Terrence Tallen and Anne Keshen, were impressed by the unique location and characteristics of Marina, which is poised for extraordinary growth with the residential and mixed-use redevelopment of Ft. Ord, the former military base located along the coast of Monterey Bay in the city of Marina.  They placed an offer on the former Kmart property in August 2005, closed on the property in October 2005, and immediately commenced a comprehensive effort to market the project to demographically suited retailers and obtain the permits and plans to make much needed upgrades to the center.

Marina Landing before redevelopment.

After closing on the property and commencing its marketing efforts through its longstanding national retail relationships, they began negotiations with Wal-Mart for a 20-year ground lease. Due to the new bundle of permits, entitlements and approvals obtained by Tallen & Keshen, this set the stage for a projected 9-month timeframe for Wal-Mart’s store opening — a timeframe the company has been told is one of the most expedited timelines for a store opening in Wal-Mart’s high profile California portfolio.

How did the developers do it and why did they want to? Why would Tallen & Keshen Holdings want to take on this center, given the failure of other developers to even acquire the property? And why would the partners jump into this deal with no tenant in hand, certain that the reality of another 100,000-square-foot big-box opening 1,500 feet from Monterey Bay was simply a pipe dream?

Where some developers saw a headache, Tallen & Keshen saw an opportunity. The company focuses specifically on value-added real estate — taking under-performing assets and repositioning them with enhanced entitlements, physical rehabilitation, and experienced leasing strategies.

“The marketplace for the acquisition of new value added retail properties is extremely competitive and, needless to say, we are very pleased that we took the risk in order to revitalize this particular development,” says Tallen, who serves as co-chairman and is one of the two founders of Tallen & Keshen Holdings. “This, in turn, means one of two things: either you end up over-paying for a property, which is something we try never to do, or you take a property that has more inherent challenges, work hard and work intelligently to overcome obstacles, and turn a C center into an A or B center.”

Marina Landing, now called Marina Retail Center at Monterey Bay, has had its fair share of challenges: Its 5-year dormant state had left the center outdated and a blight on the community. Its coastal location meant any potential developer would most likely face a rigorous approval process. But the property’s use-permit seemed to present the most difficult hurdle to clear: it stipulated that the building could only be leased to Kmart.

After placing an offer on the property and obtaining the seller’s permission to move forward, Tallen & Keshen Holdings immediately commenced the process to modify the use-permit restriction on the project. The company requested from the Marina Planning Commission a modification to this permit that would allow the property to be leased to a wider range of retail categories. This modified use-permit, which granted use to a specific, yet broader, list of retail operators, was approved. After a 10-day appeal period followed without any challenges made, the modified use-permit was granted to the property.

The modified use-permit expanded the leasing options for the project. In addition, the Kmart building had a number of original approvals related to signage, landscaping, parking, coastal designation, etc., that were grandfathered into the project. Basically, through Tallen & Keshen Holdings’ efforts, they had an entitled building directly adjacent to the California coast with numerous already-valid permits to offer to a variety of potential user categories.

And who would be the right tenant for Marina Retail Center? In doing its market research, Tallen & Keshen Holdings discovered that the city was underserved from a retail perspective.

“We found that there were no shoe stores, no apparel stores and no sporting goods stores in the city of Marina,” says Tallen. Initially, Tallen & Keshen Holdings had planned to carve up the center for a variety of uses. But then Wal-Mart showed an interest in the center. “While Marina is underserved from a retail perspective, due to the evolving demographics of the area, many retailers felt the market was not yet mature enough from a retail perspective. In looking to identify three or four tenants in the project, it made better sense to work with Wal-Mart, who will serve all those purposes.”

To Tallen & Keshen Holdings, the retailer seemed a perfect fit for Marina; the average household income in Marina is $42,231, which is low relative to California standards.

“There are a lot of Wal-Mart shoppers who live in the general vicinity,” says Tallen. “A lot of young families have had to travel to Salinas and parts farther to find affordable shopping. I’m positive that we’ve found the best retailer for that location. You couldn’t have a better hand-and-glove fit.”

But signing the 20-year lease with Wal-Mart ended up presenting yet another challenge. Though Tallen & Keshen Holdings, the Marina City Council, and many Marina citizens viewed Wal-Mart’s entrance into the city as a positive venture, there were those who did not; the developers and city soon faced the wrath of an anti-Wal-Mart coalition. Talk of revoking the modified use-permit was presented at another city planning meeting, but the Marina Planning Commission rejected taking such action. The developers respect the professionalism displayed by the Marina City Council during what understandably must have been a stressful time for all parties involved.

“After Wal-Mart’s tenancy was announced, we faced opposition from certain groups who opposed Wal-Mart coming into the community; however, the vast majority of the feedback we have received is that the Wal-Mart store will be a positive benefit to the community,” says Anne Keshen, co-chairman and co-founder of Tallen & Keshen Holdings. “We have made every effort to be responsive to community officials and the residents of Marina and to redevelop and lease the project in a manner that would serve shopping needs and remove the blight of a long standing vacant building and parking lot.”

Wal-Mart also stresses the benefits that it will bring to Marina. “We are pleased to work with Tallen & Keshen Holdings to revitalize an important economic area in the Marina community,” comments Kevin Loscotoff, Wal-Mart’s public affairs director.  “We have heard loud and clear from a number of Marina residents that this re-development is a very positive opportunity for the community that will create hundreds of new jobs that include benefits, capture much needed additional sales tax revenue, and provide a community partner that will contribute thousands of dollars yearly in local charitable contributions” 

When Tallen and Keshen tell the story of Marina Retail Center, the deal-making all sounds so easy. Why couldn’t any developer just go to the planning commission and request a use modification?

“The reason a lot of other developers were stymied with this project is that when you deal with municipalities and planning commissions, you deal with discretionary approvals,” says Keshen. “With an existing use permit in place that only allowed a Kmart to operate at the center, this was a fundamental part of the risk that we took in undertaking our financing, acquisition and repositioning of the property. We are, in essence, a local company in terms of proximity to the Monterey Peninsula. Our office is less than 90 minutes from Marina, and we had the commitment, entitlement experience and the entrepreneurial mindset necessary to deal with the challenges and opportunities presented to us by this project. We were willing to take this risk based on our confidence in being able to create value for the project, our company and, very importantly, the local community.”

Katie Phetteplace, an attorney with San Francisco-based Starr Finley, who represents Tallen & Keshen Holdings and helped complete the deal, agrees.

“A sophisticated boutique developer such as Tallen & Keshen Holdings can get these challenging properties developed and really add value in the community, where large institutional developers don’t really have the ability or the flexibility to get those kinds of things accomplished with the expediency and success that was achieved here,” she says. “They were able to go in using their relationships that they had built with the city of Marina and get those large challenges removed to allow the rest of the center to go forward.”

And with great risk comes great rewards.

“By virtue of the basis at which we acquired the property and how quickly we successfully executed upon our value creation plan, the project has been quite profitable,” says Keshen. “We had factored our projected expenses and carry over a much longer timeline and based upon our dedicated redevelopment efforts, entitlement, marketing and successful negotiations, we were able to deliver the premises to Wal-Mart in approximately 5 months. Wal-Mart is a responsive and professional organization with whom we have developed a strong relationship.”

Tallen & Keshen Holdings aggressively pursued the Marina Landings deal with the experience, relationships and capital necessary to execute upon its value creation plan. They quickly tackled and remedied the center’s inherent challenges and braved through the anti-Wal-Mart backlash. The Marina community will soon be seeing Tallen & Keshen’s hard work come to fruition when Wal-Mart finally, after 6 long years of the project’s inactivity and blight, turns on the lights and opens the doors for business to serve the community’s shopping needs.