Byline: Eric Wilson

NEW YORK — The new kid on the block is causing rumblings on the street.
Ever since 498 Seventh Avenue unofficially became the Bates Building in March, when Bates Worldwide, its now-primary tenant, moved into the renovated structure, members of the garment industry have been trying to get a good look at what the advertising agency was building inside.
And for good reason.
The outsider invasion, which began in earnest with the Bates move, is raising fears in the district that dramatic rent increases are on the horizon, spurred primarily by economic and real estate booms in Times Square and on 34th Street that are just now hitting Seventh Avenue, sandwiched in the middle.
Those concerns seemed to be solidified by reports on Monday that the textile firm Springs Industries had sold its 195,000-square-foot headquarters at 104 West 40th Street to RFR Holding Co. in a deal valued at over $29 million, or $151 per square foot. Springs will maintain approximately 75,000 square feet in the building while RFR plans to market the rest to Internet and technology companies moving to the area.
It is a likely possibility that many small companies like button and trimming showrooms will be displaced if rents continue to rise. Larger companies, too, are fearful.
“These advertising guys have created my worst nightmare,” said Bud Konheim, chief executive officer of Nicole Miller. “Our lease is up in two years and I’m scared to death. We’re facing almost double the rent.”
Miller moved in the early Nineties from 498, where the company was based for a decade, to a 35,000-square-foot showroom at 525 Seventh Avenue. The company’s lease expires in 2001, but real estate agents have been less than helpful in negotiating a new contract, Konheim said.
“We used to be the fair-haired boys of the tenants,” he said. “But they’re not salivating over us anymore. They don’t even want to talk to me anymore. They want someone like Grey Advertising or something-dot-com.”
Betsey Johnson, whose showroom occupies the 21st floor of 498, was less concerned.
“I’m happy to see the building packed,” she said. “It really feels alive. I don’t think it can be an exclusive garment district anymore. It can’t be an exclusive neighborhood. If I were a real estate agent and people were willing to pay, well, hey.”
While companies like Johnson’s and Chetta B have been in 498 for decades, others have moved in since Bates, like Victoria’s Secret, which moved to offices on the 23rd and 24th floors of 498 this summer. For apparel types working in the building, the impact of Bates is a combination of culture shock, a fear of rising rents and a realization of how the change in the neighborhood was born of necessity.
“The impact on the district is going to be great,” said Howard Bloom, president of dress firm Chetta B, who has worked in the building his whole 30-year career. “They’ve spiffed up the lobby and the building and the buyers seem to like the new feeling. But honestly, I loved it when it was all garment industry, when I knew everyone in the elevator and all you heard was how things were selling. Now, there’s a lot of strangers running around talking about who knows what.”
Bloom said he is concerned that if the building continues to become less apparel-firm-oriented, it will become a nondestination for buyers. But for now, he’s enjoying the fresh ambience and plans to take up his landlord’s offer of a tour of the Bates facilities soon.
“It’s good to have something besides just fashion companies in the fashion district,” added Randall Rutledge, owner of Randall Rutledge Public Relations on the 24th floor of 498. “If nothing else, it’s definitely helped the building amenities and services. The lobby and common spaces have improved and now they’re fixing up the hallways.”
The building was under a mess of construction that tied up elevators and forced people to use side entrances for much of the year prior to the Bates move to Seventh Avenue.
As part of the deal Bates struck with building management, the company was able to change the facade of 498 — for years the home to better dress and sportswear firms — erecting a new edifice of glass and steel that prominently features the Bates Worldwide name and logo. Then the lunch crowd at Murano’s around the corner suddenly turned up in polo shirts and khakis, instead of jackets and ties, and more upscale take-out spots opened along the street, like Cosi Sandwich Bar and Hale and Hearty Soups.
The public was invited into the new Bates offices for the first time on April 22, as it hosted the Fashion Center Business Improvement District’s annual meeting. About 100 people showed up — more than twice the average attendance for the BID’s yearly report on its efforts to improve the quality of the district — but they only got a glimpse as they were ushered into a small conference room by using an elevator that bypasses the Bates lobby.
“A lot of them were real estate agents,” said Charlie Kaszner, senior vice president and director of corporate services, real estate and facilities for Bates, who was charged with the task of relocating Bates’s world headquarters from the Chrysler Building when its lease there expired.
“I got a lot of cards that night,” he said.
The real estate industry’s interest in the Bates move isn’t surprising. Since Bates, with its $7.7 billion in worldwide billings and its 700 New York employees moved onto the block, rental prices in the district have ascended. They averaged $42.41 per square foot for class A space and $31.47 per square foot for class B, according to the FCBID’s most recent Economic Development Report, which was released in April. Since then, rents have continued to rise, according to real estate executives and renters who have looked at new contracts.
With the arrival of other non-garment firms, including advertising agencies, insurance companies, computer businesses and hotels, the number of people in apparel-related jobs in the area has dropped to less than half the total workforce for the first time in about 60 years. Among the other developments in the neighborhood are a $50 million Courtyard by Marriott that opened at 114 West 40th Street last December — the first ground-up construction in the district in 27 years — and the arrival of new Internet companies like on Eighth Avenue. Prudential Securities, which has used office space at 1411 Broadway since 1994, has also recently expanded its presence in the building.
“I don’t think it has a very big impact on fashion at this point, because these new businesses that are coming are not displacing anybody,” said Jerry Scupp, deputy director of the FCBID. “They are replacing companies that left for reasons beyond our control. You can’t say anybody is being forced out.”
The change has been brought about by a number of things, not the least of which is a spillover effect from the dramatic explosion of businesses moving to Times Square and the theater district to the north over the past five years and the retail boom on West 34th Street to the south. Mayor Rudolph W. Giuliani called Seventh Avenue Manhattan’s “next great midtown area” when Bates announced its move.
But also influencing the change is a shrinking garment center brought about by a steep rise in imports, the emergence of huge retail conglomerates, the ascension of megabrands and the movement of many factory jobs to overseas facilities, leaving the district populated mostly by large corporate showrooms.
“The location for us was ideal because this is an emerging neighborhood,” said Bill Whitehead, chief executive officer of Bates North America, during an exclusive first look at the new offices this month.
“We’re caught between two growth centers, and we believe we’re going to be right in the center of the hubbub,” he said. “I believe this neighborhood is already changing. If you look around, you’ll see there’s a ton of different businesses coming in. There is a whole different dynamic happening in the area that wasn’t here before. I think just us moving into this building has changed the dynamic of this building alone.”
But to Bates, with clients that include Estee Lauder, Wendy’s, the Whitney Museum of American Art and the makers of Lucky Strike cigarettes and Trojan condoms, the move was more about creating an environment more synonymous with its corporate image than its former home in the Chrysler Building. In other words, Bates is trying to make a impact through its neighborhood rather than making an impact on the neighborhood.
“For us to have an impact on Seventh Avenue, I don’t think even as an ad agency our heads are big enough,” Whitehead said. “I don’t think our effect on it is the critical issue. I think the issue is that we become part of it.”