LOS ANGELES — What will the Fashion District’s upper-story windows contain in the next few years — rolls of fabric and the hunched backs of sewers, or potted house plants and curtains?
This story first appeared in the October 23, 2002 issue of WWD. Subscribe Today.
It’s a question local property owners might soon have to answer.
Renovation and redevelopment fever is whipping through the 82-block downtown Fashion District here, transforming an area of dingy, Beaux Arts mid-rises into glassy showrooms and small ateliers, high-rent wholesale stores and snazzy loft apartments.
The change is welcome to many, but feared by others because of its implications for sewing contractors, fabric suppliers and small manufacturers that rely on paying a cut-rate rent of 60 cents per square foot in the upper stories of architecturally elegant, but otherwise rundown, buildings.
Property owners — many of whom are connected to the garment industry — have plowed an estimated $150 million-plus into renovations and new construction in the past three years in the downtown district bound by 7th Street to the north, San Pedro Street to the west, the Santa Monica Freeway to the south and Broadway to the east.
In the past year, more than 100 building permits were issued and more than 200 new wholesale-retail stores opened in the district, according to Kent Smith, executive director of the Fashion Business Improvement District.
Redevelopment has been sizzling in downtown since 1999, when the city passed the Adaptive Reuse Ordinance allowing commercial buildings to be converted into live-work units. Encouraged by looser city governance, garment property owners began stripping off linoleum and upgrading elevators, razing crumbling brick factories and erecting wholesale stores, opening showrooms and outfitting old industrial sites with kitchens and complete bathrooms.
The effort has pushed rents up between 20 and 50 percent district-wide in less than three years — and that good news has rallied yet more development.
“Everyone is putting money into their property,” observed Anjac Fashion Buildings owner Steve Needleman, who has renovated three buildings here. “I’ve seen more money poured into this district in the past two or three years than I have in the last 30 years.”
The biggest change? Some 3,000 lofts and live-work spaces are planned or under construction in and around the district, according to the Los Angeles Conservancy, the country’s largest nonprofit agency dedicated to revitalizing and preserving the city’s architectural heritage.
Most predict an influx of residents will raise the market value of the upper stories from roughly 60 cents per square foot to $1.75 per square foot, dramatically altering the pace of life downtown. Rents on these upper stories until now have remained stable, because the spaces were mostly undeveloped. Unlike Seventh Avenue, where some hatbox-sized apartments coexist with factories, restaurants and retail, the only bodies left in the Fashion District here after 5 p.m. are dress forms.
By day, though, the district is hopping, generating $7 billion in wholesale revenues from apparel and fashion-related business and $1 billion in retail revenues annually, according to the Downtown Property Owners Association.
Speculation about the impact of residents varies widely from unabashed optimism to worries about the fragmentation and dilution of one of the domestic apparel industry’s last hubs of jobs and production.
The Fashion District is part of the downtown’s preservation-designated Historic Core, built in a boom from the Twenties to Forties and then largely abandoned in favor of skyscrapers built in a “second downtown” to the North. Now, as is happening in other metropolitan cores throughout the nation, the older buildings, replete with grand, original windows and intricate terra-cotta molding, are attracting the eyes of urbanites and preservation buffs.
“The Fashion District has realized the buildings themselves are the centerpiece of the district,” said Ken Bernstein, director of preservation for the Los Angeles Conservancy. “They’re starting to use those assets as an economic development tool.”
Some foresee the residential conversions ushering in vitality and a new generation of fashion designers interested in loft living and working in the district.
“We’ve seen a huge increase in the creative side and entrepreneurial skills of the industry down here. And the young designers are remaining in Los Angeles,” said Smith of the BID. “Is that kind of activity compatible with residential? Is it supportive of the character of the district? The overwhelming answer is yes.”
Indeed, the once-gritty district has been gradually gentrifying. Boutique cafes, Starbucks, yoga classes and mom-and-pop specialty stores have opened in downtown offering fashion, accessories, manicures and gifts. Rents have been rising steadily over the past five years. I. Hassan, principal of leasing agency Quantum Associates, says there’s been an average rise in real estate prices per square foot of 20 to 30 percent. In the more aggressively redeveloped areas, prices have shot up as much as 40 percent in recent years. The highest ranges in the Fashion District are $8 to $10 per square foot.
Yet others argue that not only does the district make the clothes, the clothes make the district. They contend that a loss of the bottom of the food chain — cutters, sewing contractors, textile and trim suppliers — may erode the district’s identity and long-term viability.
What’s more, promises of the kind of retailers that would further make downtown living appealing — a major supermarket, a video store — have yet to materialize. Because of that, some residents in developer Tom Gilmore’s much-touted Bank District, just blocks to the east of the Fashion District, complain that their initial optimism is waning.
Others worry that property owners, lured by a dream of lucrative residential rents, will prematurely oust those who can’t pay up. In fact, sewing contractors, which are physically hard on a building and often financially shaky, are already being asked to look elsewhere for space, according to real estate sources and area property owners.
Anjac’s Needleman, who owns and runs about 1 million square feet in the district, said contractors are knocking at his door for space.
“So many other property owners are kicking them out,” he said. In his own conversion of the historic Orpheum lofts at 846 South Broadway, Needleman is looking forward to the fewer number of inhabitants that come with residential living and prove less taxing on a building’s structure. “We used to have 250 people working there for sewing contractors. Once it’s turned into apartment buildings, we’ll be lucky when we have 50 people [living] in there.”
While higher-income residents might be good for the ritzier restaurants and shops now coming on the scene, observers noted, a smaller number of people in the area isn’t necessarily good news for local business that might now cater to a blue-collar lunch crowd, for instance.
Developer Mark Weinstein’s $120-million Santee Court project will convert nine buildings along Los Angeles Street into apartments, displacing about 20 contracting firms and a handful of small manufacturers.
About five blocks away, the Maple Tower project is readying showrooms and stock space for importers — sending about 10 contractor companies elsewhere.
Hassan of Quantum believes sewing contractors won’t disappear — but they will be pushed several miles out. “Residences don’t want to be next to a sewing factory. But there are still plenty of buildings within a five- to seven-mile radius that could support the garment industry.” Over the years, many manufacturing businesses have already moved south to City of Industry.
That’s if rents stay reasonable further out. Along Crocker Street, just outside the district’s eastern boundary, two garment warehouses have been converted to more expensive wholesale-retail spaces. Although the land is technically outside the Fashion District, Smith said the BID is considering annexing the land. In the district, hot spots include the discounter bazaar known as Santee Alley, where rents run $10 to $12 per square foot. Its adjacent streets ease to $4 to $6 per square foot. Some property owners boosted revenues by 40 percent or more by subdividing premium ground-floor spaces.
Since the California Market Center (which contains the CaliforniaMart) leased one million square feet to the gift and home market, rents for showroom space in and around the downtown anchor have also been edging up. Prices range from $1.40 a square foot at the Gerry Building, a building newly converted from light manufacturing to showrooms, to $2.25 per square foot for the California Market Center’s well-trafficked fifth floor.
In 2001, land prices within the district hit a new high-water mark, with the sale of a 60,000-square-foot parcel earmarked for a San Pedro Wholesale Mart expansion. The mart, dominated by Korean-American companies, brings in millions each year, churning out inexpensive garments. According to real estate sources, the expansion land sold for $300 per square foot, giving the deal a value upwards of $18 million. The 115 units scheduled to be built on the site each will cost $120,000 to $1.6 million, according to Jason Kim, the San Pedro Mart’s property manager.
Property owner and garment veteran Uri Harkham said redevelopment is the only way to turn garment lemons into real estate lemonade. “Back in the Clinton [era], they chased manufacturing out. It harmed the fashion industry, but it’s a big break to real estate. By replacing manufacturing, you get a cleaner space with a higher rent,” he said.
Harkham and his partner Moshe Afalalo, together the Fashion District’s largest landlords with more than 30 properties, will make more money from real estate than from sportswear —the very business that allowed them to begin scooping up property. In fact, they are converting their former Hype and Jonathan Martin headquarters at 425 West 11th Street into 60 apartments with a ground floor restaurant, bumping out five manufacturing tenants in the process.
But Harkham and Afalalo are also developing projects that accommodate changing industry needs. In 2001, they leveled a necktie factory and erected a three-story men’s wholesale center. They plan to redevelop a two-acre parcel on Los Angeles Street, near CMC, to provide 400,000 square feet of parking, showrooms and retail.
Many developers are following this lead, trying to create space suited for designing, importing and wholesaling (rather than manufacturing), growth areas rooted in California’s identity.
Sean Marouf, manager of the Maple Tower project, said he’s seen the number of importers rise by 20 to 30 percent in the past year. And he’s cleaning up the Art Deco-era tower to help those prospective importer tenants attract major retailers.
“People are skeptical,” he said, referring to the TV monitors, milk-white Italian quartz floor and chrome elevators slated for the lobby. “They think we’re overdoing it for the area, but I don’t think so.”
Venice Investments, the development company behind Maple Tower and the real estate arm of a local fabric converter, is also spearheading the conversion of a 250,000-square-foot building to live-work lofts at 1000 South Hope Street. Since the building is across from the Fashion Institute of Design and Merchandising, Marouf said they will market the units first to senior class students and graduates.
There’s not likely to be a shortage of design school grads needing start-up space in the coming years. FIDM’s student body, up 15 percent, is accustomed to working in vintage buildings. Having outgrown its campus, the school added classrooms in the Standard Oil Building, at 605 West Olympic Street, and the Merchant’s Exchange, at 719 Los Angeles Street.
The Cooper Building, a 1924 Curlett & Beelman gem with its original terrazzo lobby floor, is a model for the district’s evolving role as a design-and-wholesale center.
“Creative thinking demands creative spaces,” reads the building’s artsy, black-and-white ad campaign featuring portraits of its tenants, which range from fledgling designers to the more established design studios of Bebe Stores Inc.
Susan Peterson, vice president of design and product development for retailer Arden B., which relocated its studio from Orange County to the Cooper Building, said working from the loft-like spaces has been a “joy,” particularly as she scrambles each month to zero in on a fresh color story and fashion concept.
“We need new stuff all the time,” she said. “Something will be moving on the store floor and we’ll need to see 10 fabric people all at once. And the best part is they’re all right here.”