‘Stay Alive Till ‘25’: NAI Resolution’s Gerard Nocera On Navigating The Murky NYC Market In 2024

The state of the New York commercial real estate market can be summed up in one word: uncertainty. 

NYC office vacancy climbed to a record high during the first four months of 2023, with an estimated additional 20M SF available for sublease. As companies continue to struggle to lure employees back to the office, owners are left wondering what the future holds for their assets. 

One strategy some owners have been turning to is adaptive reuse, transforming their office spaces into residential or other uses. However, while this may seem like a good strategy, NAI Resolution Real Estate Partners Managing Partner Gerard Nocera said it isn't a silver bullet. 

“Just because you can do it doesn't mean you are a good candidate,” Nocera said, adding that not all office buildings are fit for conversion and owners need to be realistic about the challenges. 

Nocera will be discussing these challenges at Bisnow’s New York City State of the Market Conference on Nov. 16 at 51 West 52nd St. Register here for the event. Bisnow recently spoke with Nocera about what owners looking to redevelop their properties are facing and where he sees the market moving in 2024 and beyond. 

Bisnow: How would you describe the current state of the NYC market? As the year comes to a close, what have been some highs and lows for the market in 2023?

Nocera: The market is very choppy right now. The recovery is taking longer than we had thought. A lot of it has to do with Covid and the sluggish response to working in office. A lot of it has to do with the general business climate and the rising interest rates. As a city, we're still struggling to understand what full-time occupancy is going to be on a go-forward basis, which has a trickle-down effect. Tenants don't know how much space to acquire when they haven't yet figured out how often they're going to occupy that space. 

Right now, the big discussion is over whether Class-B buildings that have not had the same capital improvements as newer buildings will ever be occupied by office tenants again. This leads to the conversion discussion, which is not an easy process in Manhattan, especially when you consider that no codes or regulations have been changed. Overall, it’s a time of great unknowns, and I think it’s going to take until at least late 2024 to figure it out. 

Bisnow: What inspired you to speak at Bisnow's NYC State of the Market event?

Nocera: I think Bisnow is a great forum. They pick great topics, and they pull together viable analysts. I've been following Bisnow for years and I've spoken several times, but this particular topic I found especially interesting because I am very interested in the resurgence of conversions. A lot of people feel it's going to solve many of the problems, but in reality, it will only solve some. 

Bisnow: Can you describe any projects you currently have in the works?

Nocera: I am particularly excited about two redevelopment projects. The first is 150 East 45th St., which we sold to our client as a firm, developed as a firm, and now we're managing the building for them, so we're acting as a full-service shop. I'm also representing the ownership for 330 West 42nd St., which is the original McGraw Hill building. This is a beautiful art deco, landmarked terra cotta building, and we've put $100M worth of work into the back of the house so far. We're preparing to have 234 residential rental units in the tower and office space downstairs.

Bisnow: You will be speaking on a panel titled Construction and Development Management Strategies: Feasibility of New Builds, Renovations and Conversions. Can you give us a preview of one or two points you hope to discuss during that talk?

Nocera: I plan to discuss the realistic challenges the owners of older Class-B buildings will face when they try to convert to residential use. Right now, in New York, it's a tale of two cities. The city has a proposed new district that is going to allow residential development and drop some of the very difficult code regulations that are currently in place. And that's great. You won't have to go through the long process of city planning. You'll still have to get your community board approvals, but it'll be much easier. 

But even with approval, it's really the structure of the building that becomes particularly important. It's going to be very challenging to create the right type of units, put in proper plumbing, deal with any current tenants you may have — there are a lot of challenges. 

Bisnow: Where do you see the market headed in 2024? What advice do you have for developers? 

Nocera: I personally believe the attitude through 2024 is to stay alive till ‘25. For developers, it's very difficult to find money that will do speculative redevelopment or ground-up development of any sort in Manhattan. Everybody is risk-averse. I think that until we understand the occupancy picture in New York, that's going to stay the same. Now the benefit to that is these people all need to put money on the street, and they're anxious to. It just has to be with the right project. 

There are some big speculative projects in the works, and they'll find funding, but these are mostly from family-run businesses, so they don’t necessarily need conventional, standalone financing. We've seen this before with market changes — the families get in first, then you've got your hedge funds, who are looking for an oversized return, and they'll take the risks. Once these funds have hit their levels and the returns come down, then you have your institutions jump back in. 

At the end of the day, it’s still all about quality. I have a building on 30th Street that I did a complete renovation on seven years ago, 251 West 30th St. We spent $15M on a $45M purchase to upgrade all the systems and change the use. It’s well-leased now, and that’s a testament to the quality of the product. The No. 1 thing tenants are looking for right now is high quality. So if you manage to build that type of property, you'll be successful.

To hear more from Nocera, register for Bisnow’s New York City State of the Market Conference.

This article was produced in collaboration between NAI Global and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.