In August of last year, JEMB Realty Corporation acquired the leasehold interests of Daffy’s, the now-defunct Secaucus, N.J.-based discount retail chain, for $43 million. The acquisition allowed the company, which had owned the Herald Center office and retail property for a quarter-century, to reposition its asset. In a rare interview, Joseph Jerome, president at JEMB, spoke with The Commercial Observer last week about the Daffy’s deal and his plans for Herald Center and Herald Towers, the firm’s nearby residential property.
The Commercial Observer: You acquired leasehold interests from Daffy’s and were able to start on the plan to reposition Herald Center. How did you identify the Daffy’s opportunity and what potential did you see for Herald Center?
Mr. Jerome: The layout of the Daffy’s space was: in order to gain access to their floors on four, five, six and seven, they had to enter the building through a lobby and take elevators up to their floors. The lobby that they were entering was about 4,000 or 5,000 square feet and not generating any income. So, we had the idea that if Daffy’s wasn’t there, it’s the best retail corner in the country—what would 5,000 square feet be worth on that corner? In order to unlock that value, we had to do a buyout of the Daffy’s lease for the upper floors, because that was the key that unlocked the lobby. That was the genesis of the Daffy’s deal and how we started it.
In addition, Daffy’s was paying under-market, and we knew that we could probably garner a much larger rental, shifting the entrance to 33rd Street, which we ultimately did. The big thing was unlocking the corner.
Having done that, it put you in a position to redevelop Herald Center—and you recently released plans for that. What’s your vision for the property?
As I said, the first key was Daffy’s and recapturing the lobby, but in addition to that, we had a tenant on the second and third floor that had to be relocated: ASA College. They ultimately took the fourth, fifth, sixth and seventh floors—the Daffy’s floors plus additional floors. And we’ll have a dedicated entrance on 33rd Street. So we bought out ASA from the two floors and re-entered into a new lease for them with the new entrance.
What we envisioned, and what we are planning to do, as you can see in the renderings, is install a glass façade from the third floor down and open up all of those floors, so the exposure on 34th, Broadway and, for that matter, 33rd Street would be visible for the retailers that would take that space. What we plan on doing is also putting LED lighting on the building, above the third floor, so at night it would glow. That’s really the plan, so at night it will be a tremendous focal point on Herald Square. That’s basically the plan for the exterior.
What else are you planning?
We are working with the city and the business improvement district to push the sidewalk out and add kiosks. We are working with the powers that be to do that and make that a very inviting place where people want to come and sit and congregate.
What’s available, in terms of the retail space?
Right now we have proposals on the ground—the lobby space we recaptured—and the second floor. We also have a proposal from someone who would come take the third floor.
What’s available now is 34th Street frontage, about 5,000 square feet, with a connection to the lower level, which would have subway exposure. In addition, we have space on Broadway, which is about 7,000 square feet, grade. The grade spaces are 18 feet high; the first floor is very, very high. There is additional space for a mezzanine and additional square footage.
What type of tenants are you looking for? Are you trying to reposition the space?
Yes, we are looking for mainstream retailers that are full-priced. There’s been tremendous interest from international retailers that have locations in the city, whether it is apparel or other types of international tenants. We’ve had a lot of interest because the signage possibilities for their marketing purposes are tremendous.
Is there anything you’re doing to draw more retail traffic to the area?
The retailers that we are speaking with now are opening larger stores that they are making their flagships, and I think that would generate additional interest to 34th Street by the mere fact of what they intend on doing with the spaces.
JEMB has had a presence in the area, between Herald Center and Herald Towers, for a number of years. Has there been a significant change?
In the case of residential, since we bought Herald Towers in 1999, there have been thousands of additional rental units added between 23rd and 34th Streets. From Fifth Avenue all the way past Sixth, the residential feel for the neighborhood has really increased, maybe 100-fold. With those new units, you need more services and retail. I think the complexion of the neighborhood has changed dramatically with the addition of all these units.
As far as retail, when we bought Herald Center in 1998, 34th Street was not as sought-after by international tenants as it is today. Now it’s a main center for shopping, between Macy’s and us and every major retailer you can find from Fifth over to Eighth Avenue. It’s changed the complexion, and the demand for space has changed dramatically over the past five to 10 years.
What’s the time line for work you’re doing at Herald Center and getting new tenants signed?
I would say the new tenants would be signed in the next 60 to 90 days. The work on the façade will start this summer and will be completed by the first quarter of 2014, with the new tenants taking occupancy and, I would hope, opening by early summer 2014.