LAGUNA HILLS, CA—Lining up some tenants in advance of redeveloping centers is one way Heslin Holdings creates the most value for a retail property while still watching expenses, the firm's VP of acquisitions Casey McKeon tells GlobeSt.com. The firm recently sold to Safeco a retail property at 914 West Orangethorpe Ave. in Fullerton, CA, that was jointly owned by Heslin and Becker Development of San Diego, for $22.5 million; Heslin continues to pursue value-add commercial property throughout the country, with an emphasis on the Western US. We spoke exclusively with McKeon about why his firm is attracted to this type of asset and its strategy for creating value while keeping an eye on the budget.

GlobeSt.com: Why is your firm attracted to value-add retail?

McKeon: We are in generally value-add developers and investors. Why value-add? It's still very challenging to find land that's affordable to develop on with today's tenants' rent affordability. It's better to find existing centers with a lot of deferred maintenance and a lot of vacancies. Adaptive re-use is more in line with what tenants are willing to pay. With the costs involved in redeveloping to those specific tenants, it's more economically feasible to go after existing product right now, plus there's less time involved in doing this than there is in ground-up development. Also, we've had quite a bit of success with some of the big-box spaces like Kmart for tenants looking for smaller footprints; we've had success at taking big boxes and chopping them up into smaller suites.

GlobeSt.com: Are there any new emerging markets that you're eyeing?

McKeon: Our main focus is Texas west. I've looked at product more recently on the East Coast—Florida and the Carolinas—but in markets like Denver, we like the population growth. Families are moving there for the lifestyle, and affordable housing is a strong driver. Phoenix is starting to come back with a business-friendly environment and lower taxes, and that market is responsible for 70% of the state's export. Phoenix was down for a while, but it has a diverse ethnic demographic that's attractive to a number of diverse retailers. There are a number of options when you're looking at a center to redevelop, and it's nice to see different retailers interested in a property. We had some good relationships in Idaho—Boise, in particular—which has a business-friendly environment and tax incentives for businesses to locate there, as well as affordable living standards. It is underserved in retail in terms of population and in terms of industrial as well.

GlobeSt.com: What's your strategy for creating the most value for a retail property while watching expenses?

McKeon: It's most cost effective to really wait until you have specific tenants in mind, or more importantly, specifically interested in the property. Each will have their own specific needs, so you want to have tenants engaged or signed to know what their build out is going to be. That way, you can hone in on their needs, which is more cost effective. It's all about cutting costs for us and spending money wisely.

GlobeSt.com: What else should our readers know about the 914 West Orangethorpe Ave. deal?

McKeon: It's indicative of a seller's market. It's just as important to let the market know we're continuing to add to our current funds and also our stable of investors, which are family offices and high-net-worth individuals who have an appetite for value-add investment in real estate due to high returns and tax advantages. These investors want to deploy capital into value-add opportunities, which add to our dry powder. We have purchased a number of properties where we have closed all cash with no debt, and this helps that. In 2016, we're going for investing at least $100 million, so selling this asset helps us get to that number.