Trumpeting Change on Third
Tom Acitelli Sept. 6, 2011, 11:55 a.m.
Since 2009, Gerard Nocera, Michael Reid and John Monaco have helmed Herald Square Properties, an investment and operating company that has, since launching, provided asset management services for more than 800,000 square feet of office properties in Manhattan. The former COO of SL Green, Mr. Nocera, 54, spoke about the revitalization program at the Lipstick Building at 885 Third Avenue and the company’s efforts to acquire new property.
The Commercial Observer: Apparently big plans are brewing at the Lipstick Building. Can you share some of the details?
Mr. Nocera: We’ve developed a line of third-party asset management, which allows us to put our considerable skill set into acting as owners for other owners. And that’s why we were hired at the Lipstick Building.
There are two major ownership groups—IRSA International and the Marciano Investment Group—and the very first act they did was to hire us to bring our expertise of operating in this New York City market. That was January of 2011. The asset was troubled; it had gone sideways. It had some financial difficulties over the last two years, and the previous operating partner did as effective a job as possible with the limited budget they had.
But we had the luxury of coming into a recapitalized stack. IRSA, who had a very small, silent position in the building, brought us in to right the ship, and get it back to that icon status that it used to enjoy. It wasn’t that far off, but it was enough heavy lifting that you needed the focus of seasoned professionals.
What kind of renovation effort is being planned? Give me some details.
We’re embarking on a repositioning of the lobby and the outside plaza area, and we’ve hired Moed de Armas & Shannon to be the architect of record for that project. And we’ve embarked upon a prebuilt program throughout the building.
Our approach is we’re going to divide these floors up into smaller units. We have a couple larger, full floors—like our 33rd floor—but I think we’ve come up with a layout that will be unsurpassed in the marketplace.
It’s hard to believe that it was just four years ago that Bernard Madoff, who was a tenant in the building, declared bankruptcy. Did that put the building in danger?
From what I understand, almost a week after the initial group purchased, which was in 2007, Madoff declared bankruptcy very soon after. And then there was a whole spiral—I mean, they were on three floors. And they paid top dollar in the market. They didn’t overpay. At that time in the market, it was a big number.
And once you lose three floors of rent income, it’s hard to service your loan; and that was the first thing to happen when they got into it.
But that’s all behind them. That’s history.
Are the renovations overdue?
In my opinion, yes. It needed the type of ownership it has now in IRSA—someone who really appreciates the beauty of the asset from an architectural standpoint and appreciates the importance it has in the New York skyline and in the leasing market.
What’s the time frame for those renovations?
The lobby work—it’s not a gut renovation; we’re very happy with the lobby—we’re going to be doing some exhibit space. We want to celebrate Philip Johnson. One of the things we’re kicking around is a display of Philip Johnson, and then, after that, a rolling artwork display in the south portion of the lobby.
We’re also looking at all the tree pits, the planting and the horticulture leading into the elevator entrance in front of the building.
The whole general approach as you walk up Third Avenue needs to be improved. We think that’s probably going to be done by the first quarter of 2012. The prebuilts are already under way, probably 60 days from completion.
In terms of acquisitions, is Herald Square Properties looking to make investments?
We’re looking to acquire in midtown. Our frontline business is to acquire assets.
When you’re trained at SL Green, there’s no better place to learn. For me, I went through Green when it was just this tiny little shop and I went through the growth—I left in 2008, and there was already 28 million feet—so I’ve run a massive portfolio.
Have you pinpointed any promising assets? The supply is pretty low these days, right?
We believe that you play to your strengths. We’re not branching out into Jersey, or into Long Island, Boston or D.C.—we’re a pure midtown New York player. We’ll look downtown—it’s not our favorite—but we focus our concentration in midtown. It’s really 14th Street to 59th Street, river to river. We’ve underwritten every building that has sold in the last 24 months. We haven’t won them, but we’ve come close.
We’re covering bids, but that doesn’t make me happy saying that. Covering bids does you no good—other than to know that your underwriting process is good. We’re great at capturing the expenses, the income, understanding where a building fits in the market place and understanding where you can take the building.
It’s just that in the acquisitions market today, where you have this overheated situation, I’m competing against people I never thought I would have competed against for my product class. We had thought we were going to be running under the radar. But with almost every building we’ve looked at, all the big guys are competing with us.
When do you predict that that supply-and-demand equilibrium will turn around?
If I knew that, I’d be a rich man.