Exclusive Q&A: Herald Square Properties’ Gerard Nocera on Revitalizing NYC's Iconic Lipstick Building

You’d be hard-pressed to find a better example of leaving things better than you found them than Herald Square Properties. Since launching in 2009, co-founders Gerard Nocera and Michael Reid have either owned or provided asset management services for over 1.9M SF of office space in Manhattan. This includes efforts to put the Lipstick Building back on the map through a comprehensive series of renovations, infrastructure upgrades and strategic rebranding. (Last week, owner SL Green sold the land under the iconic property for $453M.) The duo's also been a major catalyst when it comes to the rise of technology and creative tenants flocking to Midtown in the past five years. How did they do it and what’s next? In this exclusive interview, Gerard brings Bisnow up to date.

Bisnow: You’ve been involved with a lot of diverse and exciting projects since forming Herald Square Properties six years ago. Given that the Lipstick Building was the first major one, can you tell us about some of the most recent developments there?

Gerard Nocera: We’re now 97% leased and occupied. Our primary tenant is the law firm Latham & Watkins. They’ve been there since we first came on board and they have almost 60% percent of the space. Some other major tenants include StepStone Group, Meadows Office Furniture and Goulston & Storrs, which is also a law firm.

Bisnow: What are the biggest challenges of operating a building that is closely associated with one tenant?

Gerard: The challenges and rewards are really one in the same. Once you get to understand a big tenant who dominates a building, it becomes easier to make them happy because you try and tailor your operations to their needs. This really is a hospitality business. Ultimately what you’re working for is a renewal, whether it’s a 2k SF tenant or 600k SF tenant.

Bisnow: Another challenge you’ve had to face is the aftermath of former tenant Bernie Madoff. Is that still difficult even though nearly seven years have passed since the scandal?

Gerard: In some ways it is, but you can’t focus on it too much because Madoff wasn’t an owner. The atrocity of his actions obviously had nothing to do with the Lipstick Building, and it’s unfortunate that we’re sometimes still identified with him. The way to overcome that is by bringing in other worthy tenants, which we have.

Bisnow: Aside from the addition of the restaurant Crimson & Rye and new tenants, can you mention any other significant improvements?

Gerard: Yes, there have been a lot of them. We first focused on the operational issues that were created while the building was underfunded in order to bring it back to a tier-one Class-A building. We also began an aggressive pre-built program where we took 25k SF on the 26th and 19th floors and turned them into smaller units. Both of these initiatives enabled us to be perceived differently within the commercial brokerage community.

Bisnow: NYC’s top landlord, SL Green, just announced this week that it’s selling the land rights to the Lipstick Building for $453M in a deal that will apparently net $45M. Can you give us your take on this and also the fact that it’s kind of ironic given that you’re an SL Green alumnus?

Gerard: We knew that SL Green was looking to sell their position for quite a while, but we had no idea that this particular deal was in the works and it doesn’t alter anything that gives us our rights under the ground lease. They just sold that vehicle and it would be just like somebody selling a mortgage. On one level, it is kind of an interesting coincidence given my past association with SL Green, but their absolute concept constantly is to underwrite every building that’s on the market. Practically every building I’ve either looked at or have acquired as part of Herald Square Properties has either been underwritten with or owned with them, so the fact that they’re selling their interest in Lipstick isn’t in itself all that surprising. In terms of why they decided to sell Lipstick right now, I have no idea what the particulars were. In that sense, I don’t know how ironic it is or whether it’s just simply a reflection of how broadly the market is covered by SL Green.

Bisnow: Can you bring us up to date on any recent developments at your other crown jewel, 292 Madison Avenue?

Gerard: 292 underwent a major facelift thanks to Marciano Investment Group, which purchased the building around 2010. Maurice Marciano is also the founder of Guess jeans and so he obviously understands the value of good branding. He said, “I think this can be something much bigger and more vibrant than what it is today.” He hired us to bring his vision to fruition and that’s exactly what we tried to do beginning with a compete overhaul of the building’s three-story retail façade and exterior lighting system, which we started two years ago and recently completed.

In addition, we just finished two pre-built floors totaling more than 18k SF and our anchor tech tenant Borderfree signed its third expansion and extension this past April. We’re also about to begin installing a new sprinkler system next year.

Bisnow: You’ve also transformed 142 West 36th Street and 234 West 39th Street from staid pre-wars into state-of-the-art TAMI buildings, both of which attracted a number of notable technology and media tenants. Was it initially difficult convincing companies in these sectors to move further uptown?

Gerard: There were certainly some obstacles at first, but it basically boils down to blocking and tackling. Your product has to have a sense about it that it isn’t just another standard office building. Another thing to keep in mind is that these guys pay a lot of dollars to get the coolest space not only to keep existing employees happy, but also to attract new ones. When it comes to appealing to this kind of tenant, knowing how to adapt and stay one step ahead of the curve is essential.

Bisnow: Aside from your many accomplishments in real estate, you’re also known as a consummate family man. How do you juggle both and how are they interchangeable?

Gerard: You have your work family and your home family and you have to balance between the two of them. When you have a passion as I do for real estate, it spills over into my family because they sense it and it makes for a happier home life. My oldest daughter Gina is also a research analyst at CBRE.

Bisnow: What would be your advice for somebody like your daughter who’s just starting out?

Gerard: Don’t be afraid of failure and learn from it. Another thing to remember is that it’s all about the passion. If you love what you do and stick to it long enough the money will follow. A lot of younger brokers just want things to happen quicker than they did when I was coming along, although I think each generation probably says the same thing.

Bisnow: Your territory has largely been Midtown. In terms of what’s next, would you ever consider going out of your comfort zone?

Gerard: Absolutely. Throughout my career going all the way back to SL Green and Cohen Brothers where I was trained, I’ve been very active downtown in places like 17 Battery Park and 90 Broad Street. Right now, we’re active players both in Midtown, as well as Midtown South and north of Midtown. We’re also looking at areas in Brooklyn and Long Island City where we can really add value for our investors and tenants. New York is a constantly evolving market, so there’s a lot of water for us to swim in.