Some are calling it the new Meatpacking District, others are labelling it Midwest Manhattan, but ask David Levy and the Garment District will always be the Garment District, just a newer shinier version.
“The neighborhood has been changing for the last 30 years and that has everything to do with the state of the apparel business,” said Levy, who as co-principal of Adams and Company, has been leasing space there for decades.
“The area is well positioned in The Transit Triangle and continues to attract a variety of professional services and technology firms.”
And change is coming. Heavyweight fashion companies like Tommy Bahama, Weather Proof, Herman Kay and the Doneger Group have hunkered down since the city rezoned the neighborhood in an effort, it said, to balance the interests of the fashion industry with those of other industries growing in the Garment Center.
Among those looking to grow are up-and-comers such as design firm KSV, which just leased a new 1,500 s/f penthouse office at 270 West 39th Street, fashion company HMS and Turner PR, all characteristic of the new tenants who have tilted the district’s employment scales heavily towards professional services.
Getting these companies into the space is a work in progress, according to Lee & Associates’ Catherine O’Toole, who admitted, “It’s hard sometimes to get them to the front door, but once they see the space and feel the vibe, they realize the benefits of locating in a classic loft-style building in the heart of the city and on the doorstep of the biggest new neighborhood in the country.”
O’Toole believes the new Hudson Yards and its super-tenants are acting as a magnet for service providers running the gamut from PR to legal, architects to accountants priced out of the west side megalith but more than comfortable with the average $50 psf in the Garment District.
She and her colleague Stephanie Moore have been working with the long-term garment family owners of 270 West 39th as they reposition the building with an eye to the future and a nod to the past.
She explained, “They know the manufacturing business is shrinking and they want to update their buildings with an influx of new tenants but not at the expense of their old tenants. They are very loyal to the tenants who have prospered with them and have opted to cluster those tenants within the property while building out modern new office spaces for the new showroom, advertising, marketing and service tenants who now want to be here.”
While upstairs the bright, white office space is filling, downstairs O’Toole and Moore, along with partner Greg Gang, are working to rebrand the entire 39th Street block as a lifestyle retail corridor with unique storefront/showroom hybrids.
Her pioneers include ballerina Yumiko Takeshima, whose dance and athletic wear line has grown into a phenomenon, and Richard Rosenthal, an engineer turned fashion pooh-bah who has turned his Tailor Vintage Clothing into a best seller in the USA, Canada, Europe and Japan. German knitwear giant Stoll America also has a museum- worthy space at 250 West 39th where shoppers can not only buy the clothes but watch them being made.
“The market hasn’t yet caught up to having showroom tenants in retail space,” said O’Toole, “but the economics are there now while rents are still low. It was hard to convince what were traditionally showroom and lifestyle brands to take retail space, but they realized the area offers terrific exposure – nearly a million people walk through the Garment District every day – and the spaces are ideal for retail with column-free floors, high ceilings and skylights.”
Over the past few years, O’Toole and Gang have replaced old-style fabric showrooms and sex shops with a dozen new retail concepts. Classy outfits Tailor Vintage, Yumiko and Stoll have set the stage for what she believes will, one day, be “an authentic New York neighborhood with different companies, startups, restaurants and lifestyle brands that are yearlong concepts that consumers can go into and experience first-hand.
“I think its important for the new culture to be able to blend with the old one, and its important for the landlords to reconfigure space for the manufacturers so they survive alongside new tenants coming in with different visions. Fashion is never going away – it’s alive and well and we can see it evolving. Our jobs now is to find the right tenants to take these beautiful stores and become part of a new eco-system that is growing here now.”
While imperceptible to the passing masses, the real estate industry’s interest has been piqued by progress so far.
Earlier this month, Qatari investment firm Alduwaliya Asset Management announced it would buy two Garment District buildings for $140 million. The 17-story 142 West 36th Street and 10-story 234 West 39th Street are being sold by Tod Waterman and USAA just four years after they bought them for $118 million.
Garment District stalwarts Hidrock Properties also announced it has refinanced 35 West 36th Street, a building it purchased for $28 million in 2007.
“What drew us to acquire this building was its central location and proximity to mass transit, including walking distance to both Grand Central Station and Penn Station,” said Abie Hidary, Hidrock CEO. “We are pleased to have seen its value increase steadily as we redesigned, renovated and re-tenanted the building over the years.”
Since the beginning of the year, Marc Schoen and Brian Neugeboren, of The Schoen Group at Savitt Partners, have completed new leases and expansions totaling over 130,000 s/f in the Garment District, representing tenants including Golden Tough Imports, which took 60,000 s/f at 500-512 Seventh Avenue, a property owned by a joint venture partnership of the Moinian Group, Edward Minskoff and the Chetrit Group and where co-working giant WeWork has 120,000 s/f.
“The Garment District has many distinct advantages over other neighborhoods in Manhattan, including mass transit hubs such as major NYC subway lines, Port Authority Bus Terminal, Penn Station and Grand Central Terminal, as well as a revitalized atmosphere with hot new restaurants, hotels, residential developments and shopping destinations,” said Schoen. “As a result, the area has exploded into one of the most sought-after business addresses in the market.”
Ira Fishman, partner at HSP Real Estate Group, owns and manages several Garment District buildings, including 242 West 38th Street, 347 West 36th Street and 45 West 34th Street, believes that if you are getting in, you better do it now.
“We had been fighting with the city since they introduced the zoning in 1987 with this idea that they could preserve manufacturing jobs. It didn’t work and it became a hot political issue. Now those zoning restrictions are gone and change is happening slowly, but it is going to intensify and quicken and we will see more institutional buyers who have a lot of money come in and treat the property like commodities.”
Like O’Toole, Fishman sees the Hudson Yards as a major influencer in the district. “We have always said the Garment District is the gateway to the Hudson Yards – you have to walk right through here to get there – and we are going to see a massive rise in foot traffic. Already we are seeing huge changes to retail and, as the office population continues to change from factory to office, we will see more restaurants and stores that service those tenants and pedestrians as opposed to paper box and trimming stores.”
He also believes New York has an obligation to the garment industry that remains and can continue to successfully operate with landlords happy to reconfigure their spaces and make way for new office tenants.
HSP has been working quietly to position its own portfolio for the new Garment District. He said, “Looking forward, institutional owners will start coming in and exiting owners who have hesitated to invest money in their buildings to bring them up to the quality office people want. We have done it at 242 [West 38th] where we renovated the lobby and turned the old freight elevator into a passenger elevator and started to open up floors for office use. We replaced a label company that moved to Texas – he can run his business from anywhere – with a media and a tech company.”
At 251 West 30th, Gerard Nocera and Michael Reid, managing partners of HSP, have attracted a slew of TAMI tenants since gutting the building and earning a Silver LEED Certification.
Fishman added, “Renovating lobbies, relocating fire exits and combining passenger and freight elevators can take two years and you can spend a half a million on a lobby alone. Then you’ve got the bathrooms, plumbing, wall repairs offices, electrics… We did it so that we would be ready when the market turned, and now we are going to see where we go. The pace of the change is something that you can only guess at, but I would bet anything I have it will change.”
It’s a strategy being played out by owners throughout the district where average asking rents in the first quarter were $50.26 psf – a jump of 12 percent in the last four years. “It’s all becoming more scientific,” said Eric Anton, an investment sales specialist with Marcus & Millichap.
“The majority of properties are still owned by private families who have been there a long time, but we have seen more foreign investors – Asian, Japanese and Middle Eastern and some institutional money coming in. Buildings that were purchased by garment families in the $60 and $70 psf range are now worth ten or 15 times that much. Some of the corner buildings are $800 and $900 a foot, depending on the quality of the tenants and the cash flow.”
While there has been very little in the way of recent office trading, Anton said the hotel sector is sizzling. There are 42 within the GDA boundaries and 12 more under construction or in development while the number of hotel guests has jumped nearly 70 percent from 2014 to 1.5 million a year
“Now we have that tourist trade and it is spilling into new restaurants and retail and a we see a lot more nighttime activity,” said Anton. “The good news is that, when they were built, these properties had very high ceilings and open spaces that can easily be adapted to accommodate gyms, restaurants, yoga studios, galleries and all kinds of stuff that is really going to change the neighborhood’s retail landscape.
“The general feeling is that most of these long-term owners are skeptical about change and accept it only gradually, so they are not going to lease space to an art gallery and put a ton of money into a new idea. But change comes slowly and the Hudson Yards has certainly shifted the weight. It has already caught fire with international tourists and it is really going to help diversify the tenant base in the Garment District and more firms come into to service these west side giants.
“The buildings here will never be as efficient as Hudson yards, but they are good, solid buildings, for the most part, and once you upgrade the mechanicals and improve the space, you’ve got a property that can perfectly service the new kind of tenants coming to the neighborhood.”
For tenants like Jennifer Busch, whose family has operated I. Buss and Allan Uniform company for generations, the Garment District was a perfect fit when the company moved to 142 West 36th Street eight years ago from Midtown South.
“When our lease was up, Midtown South had gotten much fancier and rents were going up. The Garment District was cheaper and offered us more space, plus the fabric shops were here, making it more convenient for the business.
“There have been a lot of changes since then that have made the neighborhood more palatable; people sit outside and have lunch now, we have food vendors and upscale restaurants.”
But she admits she is worried that all these improvements will come at a cost. “The rents escalate every year and we could get priced out,” said Busch. “I love that my garment business is doing well here in the Garment District but, who knows? People have already been priced out of the building. It would be great if they were more reasonable about the rents so we could stay. Maybe we could go to Long Island City or Harlem, and there are some tax incentives to move downtown.”
The other gripe Busch has is the chronic homeless situation. Destitute New Yorkers cluster around the 34th Street subway where a warren of underground tunnels becomes almost impassable in the winter. “It is awful that people have to survive that way, but it is a situation that is very problematic.”
It’s not something that has gone unnoticed by Barbara Blair, chairman of the Garment District Alliance. “This is a huge challenge. It was a challenge for us last summer with our public plazas and we contemplated closing one this summer because it is such a problem,” said Blair.
“We believe there needs to be a wholesale revisiting of public policy on how to deal with social problems that are now taking up camp on the streets of New York. It’s a very discouraging situation because, by law, people are allowed to live on the street and a lot of anti-social behaviors are not against the law.
“I’m not suggesting we can arrest our way out of this problem, but we need a remedy for people in crisis and we need to reclaim shared public spaces that are being taken over in central business districts.”
Blair calls the situation a blight on what has otherwise been a remarkable transformation. “The area is much more dynamic and its full value is being realized by the real estate community which sees opportunity for small business to locate to buildings that have seen massive investment in improvements.”
She too believes the Garment District will always have a place for the garment industry. “We do have a handful of buildings that are still 100 percent manufacturing and the owners are very happy. These properties were built for this and it’s a bread and butter business. For them to convert to office would be enormously expensive, and there are IDA programs and EDC incentives now for owners who retain garment production in their buildings to ensure this cluster stays in Manhattan to service the showrooms and designers throughout New York City.
“We want to keep that core business here because, if you are the general public, you like a neighborhood that means something and that is one of the advantages that this area has in its midst – a memory of what it once was and a promise of what it can be.”