Goodbye, Garmentos: Rag Trade Surrenders to Dot-Com Riches

Decades ago, when the garment industry on the far West Side formed the spine of New York manufacturing, the squat, blocky building at 498 Seventh Avenue was the center of an economic universe.

Built by a consortium of 58 manufacturers around 1920, the Garment Center Capitol, as it was known, rose 24 stories, employed 22,000 workers and manufactured $200 million worth of clothing a year, according to contemporary accounts. The building’s top floor housed squash courts and a lavish ballroom, where the clothing buyers who came to New York from all over the country could amuse themselves when they weren’t downstairs haggling.

Those days are long gone, of course. The garment industry here has been in gradual decline for decades. As recently as two years ago, the building at 498 Seventh Avenue stood nearly half-empty, as its apparel tenants, replaced by cheaper labor overseas, moved out of Manhattan or went out of business.

But, today, 498 Seventh Avenue is almost full again. Bates Worldwide, an advertising firm, now occupies six stories. A startup, Metastream.com Corporation, is moving in to the 18th floor, joining four other technology firms in the building. Meanwhile, in the tiny, high-ceilinged room where buyers once played squash, Patricia Underwood’s hat factory, one of the building’s last apparel-industry tenants, is just barely holding on. Her shop is one of a handful of survivors that have managed so far to resist the forces of changing tastes and globalization, to continue operating in the Garment District. But now rising rents are threatening to drive her and her colleagues away.

The tech boom has come to the Garment District, delighting its landlords and displacing its longtime tenants. With their coffers full of venture capital and shareholder cash, dot-com entrepreneurs are gobbling up office space, happy to pay the inflated rents that their predecessors in the neighborhood can no longer afford.

Special zoning regulations adopted in 1987 were supposed to protect the industry from being priced out of the city. But the zoning regulations, by most accounts, are being ignored. And, pressed by the explosion of big-spending technology companies that need room to grow, the office market is quickly spreading west, pushing the manufacturers toward the river, onto side streets, or out of Manhattan entirely.

“The owners of the buildings in this area, they don’t want manufacturing anymore,” said Lipp Holmfeld, a designer who began making hats with Ms. Underwood out of Ms. Holmfeld’s Greenwich Village apartment in the 1970′s. “It’s problematic: It’s noisy, it’s dirty, and they can get higher rents from other companies.”

Three times in the last decade, rising rents have forced Ms. Underwood to move. Today, a showroom for her summer line, hats mostly of straw-which retail at places like Bergdorf Goodman and Saks Fifth Avenue for $125 to $500-shares 3,000 square feet with hundreds of wooden blocks used to shape the hats, and a handful of sewing machines, where workers sew on thin strips of braid to form the hats’ brims.

Sometimes it doesn’t even matter if tenants can pay the rent or not. Richard Rumelt, manager-secretary of the garment workers’ local union in the district, said that the owner of one garment firm told him the firm had been refused space under any conditions at a building on Eighth Avenue. Several dot-coms already occupy the building. “The landlord said he doesn’t want any more garment tenants,” Mr. Rumelt said.

But it’s not just the rents that have changed. As more and more companies have left the building, replaced by computer programmers, ad executives and environmental engineers, an old sense of community has been lost, Ms. Holmfeld said.

“You see it-obviously especially in this building-in the people that come and go,” she said. “You hear their conversations on the elevator, and it’s not that same sense of camaraderie.”

“All I know is one thing: It used to take me half an hour to walk from 29th Street to Penn Station, meeting people, talking, saying hello,” said David Pollack, 71, whose family has been operating a furrier supply company since 1918. “Now I do it in three minutes.”

How to preserve the disappearing Garment District has been the subject of an ongoing series of forums at the Municipal Art Society. At a roundtable discussion on March 1, Mr. Pollack, Ms. Holmfeld and others reminisced about their lives in the industry. They seemed to have little hope. As Alfred Solomon, a 100-year-old retired hat designer who started in the Garment District more than 70 years ago, said, “I think if you hope to save the Garment District, well, I wish you luck.”

Indeed, with rent inflation in some buildings running at 75 or 80 percent, according to Robert Eisenberg, associate director for Julien J. Studley Inc., it may be only a matter of time before the garment business is out of the neighborhood entirely.

“All the present tenants are scared shitless,” said Bud Konheim, chief executive of Nicole Miller Ltd., who just saw his rent double when he signed a new lease at 525 Seventh Avenue.

The old Capitol building will likely change over entirely within a few years as traditional tenants’ leases run out, predicted Sean J. Leary, senior vice president for George Comfort & Sons Inc., the firm that manages the building. In 1997, Comfort, in partnership with Loeb Partners Realty, paid what seemed like a lot for the aging, half-empty building: $42 million. But the late-90′s office space crunch has made it seem like a wise investment. Average rents in the building have risen from $17 to $40 a square foot.

During a recent interview in a conference room on the building’s 22nd floor, Mr. Leary paused to talk on the phone with a prospective tenant, an Internet firm. “I was calling to encourage you to throw your hat into the ring,” he said. “We’ve got plenty of bandwidth … Whatever you want: T1, T2, fiber.”

After he’d hung up, Mr. Leary said, “These [garment] businesses cannot afford to compete with dot-coms with piles of cash.”

The success of 498 Seventh Avenue has prompted others to redevelop Garment District buildings with the hope of luring tech companies to the neighborhood. Across 37th Street, a group consisting of Larry Gluck, Joe Moinian and Goldman, Sachs & Company is refurbishing 500-512 Seventh Avenue along similar lines. Fortunecity.com has already signed a lease for 22,600 square feet. C&K Properties is sprucing up-and rewiring-buildings at 224 West 30th Street and 330 West 38th Street. Max Capital Group is remaking an 800,000-square-foot building at 1440 Broadway, and has already leased a big chunk of that space to search engine About.com. Farther south, in the high West 20′s, neighborhood that has long been home to New York’s furriers, the dot-com wave is forcing out the old-timers at 307 and 345 Seventh Avenue.

Privately, some in the real estate industry wonder whether pinning all these development hopes to companies with unsure long-term prospects might be foolish. Some landlords are reluctant to rent to dot-coms, for fear that the free-flowing venture capital will dry up if the booming market for tech stocks sags, leaving entrepreneurial tenants unable to pay their rent and shortsighted landlords unable to fill their rewired office space.

“The dot-com guys are going to go through what the garment people have been going through for years,” Mr. Konheim predicted. “Some of them are going to go out of business, and the landlords will be left holding their heads.”

The disappearing shmatte neighborhood is the last vestige of Manhattan’s industrial age. The modern Garment District was born after World War I, said Andrew Dolkart, a professor of architecture at Columbia University. From its origins on the Lower East Side, the garment industry moved up Fifth Avenue-creating a stir among retailers who feared that the presence on the street of laborers from Eastern Europe might frighten away customers. Department stores threatened to boycott manufacturers who stayed in the area, and banks said they’d refuse loans to factories unless they moved. So the industry quickly moved over to the predominantly African-American and Irish residential district known as the Tenderloin.

Today, the apparel business remains the city’s largest manufacturing industry, providing 74,000 jobs, many of them low-skill. The industry has been declining for years, and the city has lost 182,000 garment-related jobs since 1968. (Internet-related jobs in the city, by contrast, have more than doubled, to 250,000, since 1997, according to a recent industry study.)

“Not everyone in this city can work at a dot-com or on Wall Street,” said Jonathan Bowles, who wrote a recent report on the rising real estate prices in the Garment District for the Center for an Urban Future. “The apparel industry for decades has provided jobs for low-skilled workers and immigrants, and it needs to be protected.”

Mr. Bowles placed much of the blame for the rising rents on the Giuliani administration, which he claimed has failed to enforce the 1987 zoning regulations, which mandate that 50 percent of all space on the district’s non-avenue blocks be devoted to manufacturing. A 1998 study by the Fashion Center Business Improvement District found only 39 percent of businesses on the side streets were manufacturers. Anecdotal evidence suggests that that percentage has fallen even lower.

The Real Estate Board of New York is currently urging the city to reconsider the regulations, said Jerry Scupp, the deputy director of the Fashion Center B.I.D. At a time when less than half of all jobs in the district are still garment-related, the B.I.D. has decided to encourage more technology firms to move into the area. Mr. Scupp said the B.I.D. has recently asked the city to provide grants to market the district to technology firms in light of a similar program that enjoyed great success downtown.

At its current pace, development “is flowing over into the side streets. It’s really a function of the overall tight market,” said David Winoker, vice president of Winoker Real Estate. “These buildings that are prewar lofts, they have a type of a look that [technology companies] like.”

When Metastream.com was looking to move from Princeton, N.J., into the city recently, the company was attracted to the Garment District’s relatively low rents, ample space and proximity to Pennsylvania Station, said Dmitry Paperny, its director of business development. The company moved into 498 Seventh Avenue after looking at numerous buildings throughout the area, most of which he rejected as “too garment.”

“There was fur laying on the floor or stuffed leopards in the offices,” he said. Landlords assured the company that those tenants would be gone soon enough, he said. During its search, the company found that landlords “were willing to pretty much do anything-move people around, they were willing to eat certain construction costs, to accommodate us any way they could,” Mr. Paperny said.

He said he liked the neighborhood vibe: “sort of high-tech, hip, but not too posh.”

Ms. Holmfeld would disagree. By her reckoning it’s already too posh, and getting worse. A few days ago, she deviated from her usual lunch routine to buy a sandwich at Cosí, a new sandwich shop across the street.

“It was a ham and brie … and a very small bag of potato chips. They charged $9.95!” she said. “I decided to go back to Al’s Deli where the same thing is $3.95.”

Indeed, Al’s Deli and its denizens are part of the neighborhood’s appeal. “For the advertising guys to go out at midday and see models and all kinds of interesting-looking people walking the streets,” Mr. Konheim said. “They can’t see that anywhere else.”

But the interesting-looking people are disappearing.