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Garment District: Developers stitching up a residential neighborhood

Glenwood Management’s tower at 320 West 38th Street is under construction.

While residential development on the far West Side has generated significant buzz thanks to the planned redevelopment of the Hudson Yards, a lower-profile stretch of land just to the east appears to be quietly undergoing its own renaissance.

A handful of developers are working on a number of large-scale residential projects on the western periphery of the Garment District, a gritty swath of the city marked mostly by small factories, parking garages and nondescript showrooms.

Since most of the Garment District is zoned for manufacturing use only, developers have zeroed in on a five-block stretch, sandwiched between Eighth and Ninth avenues, that runs from 35th to 39th streets. The push to develop there comes three years after the area was incorporated into the Hudson Yards Land Use Plan, which permits residential building that was not allowed in the past.

Glenwood Management and Lalezarian Developers, both firms that predominantly work in New York City, have scooped up multiple buildings in the area to develop residential towers. In addition, several other residential projects appear to be on the horizon.

The big-time real estate players that have gobbled up properties on the far West Side in the vicinity of the Hudson Yards — Vornado Realty Trust, the Related Companies, Brookfield Properties and the Moinian Group — have so far not made investments in the area.

"Even though this neighborhood is walking distance from Times Square, it's not on the radar screen of the bigger firms," the chief economist at Eastern Consolidated, Barbara Byrne Denham, said. "Some firms are more willing to be pioneers than others."

Glenwood worked with Eastern Consolidated to purchase a parking garage, a parking lot and three walk-up buildings on 37th and 38th streets between Eighth and Ninth avenues, in a deal valued at around $80 million that closed in the beginning of 2007, according to Eric Anton, an executive managing director at Eastern Consolidated. Now, buildings have gone from the transaction phase to the brick-and-mortar phase, which is visibly starting to change the makeup of the neighborhood.

Construction has already begun on two 24-story towers, one on 37th Street and the other on 38th Street, that will have a total of 569 rental units made up of studio, one- and two-bedroom apartments. The towers, which are slated to open in June 2009, will each have their own lobby levels that will connect in the middle.

Glenwood's executive vice president, Gary Jacob, said despite the neighborhood's low profile, his company was drawn to the Garment District because of the value.

"It's hard to find land that's affordable," said Jacob, whose company has also invested in Yorkville on the Upper East Side and in the Financial District. "The neighborhood was about the only one where we could buy land that worked for our numbers."

Anton, who brokered the deal, said Glenwood purchased the properties for a little over $200 a square foot, which is about half the going rate in neighborhoods like Soho and Tribeca.

The second major development under way in the area is in the beginning phases of construction roughly across the street from the Glenwood tower on 37th Street.

Tower 37 LLC, an affiliate of Lalezarian Developers, received $94.5 million in financing from the New York State Housing Finance Agency to build a 27-story apartment building with 207 units, of which 42 will be reserved for low-income residents.

Even though zoning regulations restrict residential development to the western periphery of the Garment District, there is still potential for even more projects in the neighborhood, sources said.

Eastern Consolidated, which has done a lot of work on the perimeter of the Garment District, recently brokered a deal at 313-321 West 37th Street that Anton said has the makings for residential development. He would not identify the name of the buyer, saying only that he was a "wealthy individual."

Property records show that in November 2007, a company by the name of 313 LLC purchased a deed for $26.5 million and assumed a mortgage of $11.75 million for the properties. Building permit records show that the owner of the property is Morry Kalimian, who reports identify as a partner at Elk Investors, a company that also owns an office tower at 489 Fifth Avenue.

A phone call to Kalimian was not immediately returned.

Meanwhile, Massey Knakal Realty is shopping around another site in the area — a parking garage that cuts through 35th and 36th streets. The garage's owner is currently accepting proposals.

"There has been a decent level of interest in the site," the firm's chairman, Robert Knakal, said. "The biggest variable as to what is going to get built and what is going to get sold will be predicated on the financing that is available."

Knakal said because of the increasing difficulty smaller developers are facing when it comes to financing projects, the future of the neighborhood will likely depend on whether or not more firms with proven track records get in on development there.

A senior vice president at Corcoran, Susan Sears, who has been representing apartments in the area for 20 years, said that new development would raise awareness of the neighborhood's currently undervalued loft spaces.

Sears said loft spaces often sell for between $700 and $1,000 a square foot, which is roughly 25 to 40 percent less than similar spaces in more fashionable Manhattan neighborhoods, like neighboring Chelsea.

But even as some developers have looked to the west end of the Garment District as an increasingly plausible investment, prices appear to be dipping. Land values in the area have dropped by 10 to 15 percent since the height of the market, according to Knakal.

Still, residential developers aren't the only ones getting into the action in the Garment District's western end. A cluster of mid-priced hotels have either recently opened or are under construction. McSam Hotel Group and the Lam Group have plans this fall to open a combined five new hotels on 39th and 40th streets.

Whether or not more developers decide to build in the Garment District's west end, many believe the current projects alone will drastically change the neighborhood.

"This is a neighborhood that was, frankly, pretty crappy," said Anton. "In a couple of years you're going to see bunches of young people walking around, and [you're] going to see new restaurants."