The Real Deal New York

Sam Chang eviction offers a case study of the Garment District

Clothing manufacturers forced to make way for McSam's West 39th St. hotel

April 29, 2015 12:20PM
By Tess Hofmann

From left: Ramdat Harihar (credit: The Wilson Quarterly) , 338 West 39th Street in the Garment District and Sam Chang

From left: Ramdat Harihar (credit: The Wilson Quarterly) , 338 West 39th Street in the Garment District and Sam Chang

When budget hotel developer Sam Chang filed eviction proceedings against tenants at 338 West 39th Street last month, it highlighted a project that is a virtual case study of the change sweeping the neighborhood. 

Chang’s McSam Hotel Group has a thoroughly established presence in the Garment District, which has seen 30 hotels sprout up in the past decade while the traditional clothing manufacturers that gave the area its name hang by a thread.

At 585-587 Eighth Avenue, he is developing a 35-story Holiday Inn. Last year, he purchased the Postgraduate Center for Mental Health at 334 West 36th Street for $50.8 million and subsequently filed plans for a 406-room hotel. And at 326 West 37th Street, he has a 252-key hotel in the works.

While plans for his latest Garment District project, which will likely combine two sites at 338 West 39th Street and 350 West 39th Street into a single hotel site, are still under wraps, the necessary evictions are underway.

After closing on the $22.5 million, 12-story industrial building at 338 West 39th Street in January, McSam promptly served its tenants with notices that their month-to-month leases would expire on Feb. 28. By March 5, the remaining tenants were slapped with court papers saying that they were occupying the premises illegally.

The holdover tenants include R & C Apparel Corp., a garment manufacturer specializing in fabric embellishment that has worked with designers like Marc Jacobs, Anna Sui and Nanette Lepore.

“I’ve been trying to get a reasonable space within the Garment District,” said R&C president Ramdat Harihar. “All the landlords, they’re looking for computer people. They’re looking for office rentals.”

The city has been mulling a rezoning that would allow building owners to rent entirely to office tenants. At the moment, a zoning requirement from 1987 preserves some space for manufacturing tenants, a rule that some see as outdated.

But despite the requirement, landlords are making their preference for office tenants known. Harihar said that Isaac Chetrit and Ray Yadidi’s 320 West 37th Street had several floors open, but they would not consider a manufacturing tenant. In a brief phone conversation, Chetrit denied owning the building.

Despite the rising rents, Harihar would be willing to downsize in order to preserve the “Made in New York City” distinction and to keep his proximity to Parsons The New School for Design and the Fashion Institute of Technology, whose graduates use his services.

“I don’t see my business going into Brooklyn,” he said.

For others, the rising rents are prohibitive. David Farelle, owner of Farelle Company, a garment manufacturer in the building, is struggling to find new accommodations in his price range.

“It looks like it’s impossible… it’s three times the price what we used to pay,” he said. He lamented that rents are now over $50 per square foot in the neighborhood, and said that the lease he was losing was in the teens per square foot. He has been in the building for 14 years.

“Nobody can afford to pay the price for the rent,” he said. “As the middle class, we’re getting crushed.”

Representatives for McSam declined to comment, citing pending litigation.

Other tenants facing litigation are an apparel production consultant, a fabric dying business, an architect’s office and a Hebrew-language video company.

Two tenants have already reached settlements with Chang, but will have to move by the end of the summer.

In the meantime, the hangers-on have been left with a broken passenger elevator and are making do with a freight elevator that is off every day from 12:30-1:30 p.m.

“It’s a really bad situation,” Harihar said.