S.L. Green proving to be a hot shot among big guns

Real Estate Weekly, Feb 4, 2004 by Peter Moore

After three major purchases in 2003, including the recent purchase of 45% ownership interest in 1221 Ave. of the Americas, Gerard Nocera, director of real estate for S.L. Green, said the company's goals continue to be recycling and upgrading its portfolio.

The passive ownership strategy at 1221 Ave. of the Americas--in which the company entrusts property management to the Rockefeller Group, majority owners of the property--is a relatively new one for S.L. Green. According to Nocera, however, it reflects the company's dedication to purchasing better quality space filled by great tenants.

Andrew Mathias, who was promoted to chief investment officer at S.L. Green last week, said the company saw great quality and revenue potential in 1221.

"I think this is a fantastic opportunity," Mathias said. "Our view is this is the finest building in Manhattan. Opportunities like this don't come along often."

And one could argue the purchase serves as further evidence that S.L. Green has reached the level of "big guns" with names like Vornado, Brookfield and Silverstein.

"I think we already operate with the big guns," Nocera said. "But it's been a mandate of ours to get to that level and surpass that level." The strategy behind that is simple, Nocera said. Among other tactics, it includes hiring the right staff, constantly seeking better credit tenants and accommodating them in the best way possible through adequate floor plans and suitable technological needs.

An example the company cites proudly is its 2001 purchase of 317 Madison Ave., a 23-story, 490,000 s/f building the company bought from Richfield Investment Company for $105.6 million.

"It was poorly positioned in the marketplace," Nocera said. After much renovation and upgrades to the property, the building's proximity to Grand Central is complemented with office space that is rapidly being modernized. The building's retail outlets include the Athlete's Foot and T.G.I. Friday's.

But the company seems to be taking a break from acquisitions, as both Nocera and Mathias announced they have no plans so far to purchase property in 2004.

"We do expect to have some dispositions," Mathias said, adding, "Nothing specific right now. We'll evaluate each building, according to its occupancy (and) future growth aspects and make a decision at the time."

And according to Mathias, the rising interest rates that will almost certainly follow November's presidential election is not a prospect S.L. Green views with trepidation.

"I think it will present a great opportunity for us," Mathias said, explaining how higher interest rates will stimulate competition in office markets.

And although the company holds property downtown, the Grand Central market is considered the company's hot spot. The Sept. 11 attacks caused many financial services companies to flee downtown and relocate to the Times Square area, where the company also maintains three properties.

Will those companies be drawn back by incentives?

"Until there's available space down there, we don't know," Mathias said.

But the decision isn't that simple, Nocera said, as downtown is a "very different market." And meanwhile, the company can look forward to rising rents as jobs increase and sublets and vacancies shrink. Nocera predicted the activity will pick up toward the end of the year and continue into 2005.

And while the company is always keeping an eye on the suburban and outlying borough market, Mathias added that S.L. Green plans to focus exclusively on Manhattan for the foreseeable future.

"We hope people will always pay a premium to be in Manhattan," he said.