Residential development collides with West Chelsea clubs

New York /
Dec.December 03, 2007 11:19 AM

West Chelsea’s streets have long been the locus of New York club life when the sun goes down. The night crawlers’ neighborhood, though, has attracted plenty of new residential construction, setting the stage for a showdown between developers and the nightclub scene.

The developers are getting support from Community Board 4, the elected neighborhood body that has long been tired of the rowdy wee hours. And the police have taken steps to curb the chaos of drunken club-goers spilling out into the street, adding floodlights and erecting barricades to separate the street and the sidewalk. A clearly marked NYPD security camera hangs above West 27th Street just west of 10th Avenue.

But developers have an even more sedate vision of Club Row, one that features young families living in sleek condominiums, and streets where parents stroll with their children down new sidewalks and shop at the same stores that already dot the rest of Manhattan. In the city that never sleeps, the new residents of West Chelsea will pass out early, until they have to get up and feed the baby.

Thanks to a 2005 rezoning, which allows residences to occupy mid-block lots in what was once a manufacturing zone, many new condominiums are going up in the heart of Manhattan’s most vibrant club district. Many prime lots in the area have been snapped up, and at least eight significant projects will soon transform clubland.

The potential transformation could be particularly noticeable on one club-saturated block on West 27th Street between 10th and 11th avenues, according to the New York Post. Several sites there are in play, having been sold to developers, in contract or in negotiation.

Robert Benfatto, district manager of Community Board 4, which encompasses West Chelsea, said that the board would “probably look unfavorably on any new club application because there’s too much saturation.”

Indeed, last month, the board recommended against renewing the liquor license of Crobar at 530 West 28th Street, unless the new owners from Miami could substantiate their plan to make the club smaller and more lounge-like, as was done at Spirit, whose owners closed the mega-club and divided the space into smaller venues called Bed, Home and Guest House.

The power wielded by local community boards is officially advisory, but their decisions can make or break a club-owning entrepreneur’s future.

“The State Liquor Authority now takes the boards’ recommendations very seriously, whereas before it was a formality; it’s harder to get a liquor license than ever before,” said Steven Kamali, a broker who specializes in nightlife.

The size of a club plays no factor in the authority’s decisions, said Bill Crowley, a liquor authority spokesperson. Licenses must be renewed every two years, and a club’s size has no bearing on the application, though the agency is considering issuing a new set of licenses that distinguishes among restaurants, bars and clubs, he said.

“That’s just another means to get rid of the mega-clubs,” said Robert Bookman, attorney for the New York Nightlife Association.

Clubs are one of the most ephemeral businesses in the city, said James Famularo, executive vice president and director of commercial sales at New York Commercial Realty Services. With few exceptions, no matter how hot the club is when it opens, the scene inevitably moves elsewhere and clubs either go under or reinvent themselves, Famularo said.

There are currently four mega-clubs of more than 15,000 square feet operating in the city: Pacha, Avalon, Webster Hall and China Club, none of which operate in West Chelsea. In 1994, there were eight mega-clubs in the city.

But fleeting or not, some say it is no coincidence that the largest and most successful clubs today are outside the once red-hot West Chelsea club zone. No clubs have closed as a direct result of the rezoning in West Chelsea — yet.

“It’s almost as if the city rezoned to get the clubs out, in one respect,” said nightclub broker Alex Picken, who arranged the $30 million sale of a club in West Chelsea to a residential builder, though he declined to divulge the players.

He counted around 10 clubs operating within a two-block radius of West 27th Street, including one building with three clubs on different floors. But brokers say it is only a matter of time before many of these clubs put away their velvet ropes for good.

The city’s real estate boom has already claimed several renowned nightspots, including CBGB in the East Village; Culture Club in the West Village, to be replaced by a boutique hotel; and the Copacabana’s latest location at 11th Avenue and West 34th Street, which will make way for a 1.5 million-square-foot Extell office tower. Many hipsters mourn the passing of Mo Pitkin’s House of Satisfaction on Avenue A, which is now on the market.

The same forces will eventually scatter the West Chelsea scene, where nightclubs first arrived in the 1980s. The landscape of low-rent auto body shops and warehouses had more in common with Long Island City than the rest of Manhattan, and with no one around to complain, the club scene flourished. In the 1990s, artist studios added further cachet, as did the arrival of Chelsea Piers in 1995.

“The same thing happened in Soho, Tribeca and Williamsburg,” said Famularo. “The beatnik artists start living there, hanging out in cafes, and the neighborhood turns cool, not dangerous. Then it becomes the new thing, and the developers start buying up property.”

Developers break new ground

The first round of building is taking place between 17th and 20th streets. The West Chelsea boondocks, seen as a blank canvas for bold architectural concepts, are hot, and not just for office buildings (half of Frank Gehry’s iconoclastic IAC headquarters stands on the former site of the Roxy). Bold young architects have designed condos in the area, but with development radiating from the Meatpacking District south of 14th Street and the Hudson Yards in the low 30s, the parking lots and underutilized properties in the 20s have also all been bought up.

Blue plywood fences plastered with posters dot several strategic corners and lots, including 200 11th Avenue, a Young Woo project by rising architect Annabelle Selldorf. The modern building will have a glazed terracotta base, a façde of large stainless-steel panels and car elevators. Nearby, an Atlantic Development Group hotel and rental site sits sandwiched between a bodega and a five-story walkup on 10th Avenue just north of West 27th Street. Not far away, a new building designed by French architect Jean Nouvel at 100 11th Avenue on far West 19th Street is going up. The strikingly complex plans call for a curved glass façde with 1,650 individual windowpanes.

Artist-turned-developer Peter Moore, who is building an 11-story office condominium at 520 West 27th Street (with sales above $800 per square foot), counted eight “significant residential condos” between 27th and 30th streets.

“Every site is under contract or under construction,” Moore said. “Club life on 27th Street has a short future, and no one is shedding a tear because there’s no need to have 20 clubs within an eight-block radius.”

As of now, the area is “a destination neighborhood with a second round of high-end condos and hotels to follow in the next few years, all of which will be priced based on the significantly higher land prices being paid for those lots,” said Andrew Harris at Madison Equities, builders of the Chelsea Modern condominium at 447 West 18th Street. “The current buildings and this second round will attract high-end goods and service providers to the 10th Avenue corridor.”

Remoteness an asset and a liability

Ironically, West Chelsea’s remote location is being marketed as an asset to potential residential buyers, as well as its proximity to the Hudson River and the High Line itself, which is undergoing a $65 million renovation into a unique park.

“It’s going to be war between the new condo owners and the nightclubs,” said Bookman. “People pay multi-millions of dollars to live in a cutting edge neighborhood, and they’re shocked, shocked — in the Casablanca sense — to find that there are people on the streets at night.”

Due in part to the real estate industry’s lack of support for nightlife, which he calls shortsighted, Bookman contends that the residents will win.

The remote location of the neighborhood works against the clubs, said Community Board manager Benfatto. Even though clubs can blast their music with impunity, problems begin when patrons have to walk to the subway on Eighth Avenue, past residential buildings where resident New Yorkers may actually be sleeping.

In addition to a number of housing projects that separate the clubs from the rest of Manhattan, “we have a cluster of townhouses tucked into some of these streets, and these are the people who complain the most,” Benfatto said. “There’s going to be even more griping when the condominiums come in and the city is looking to open up the Garment District to clubs because there’s better access to transportation.”

The unruliness surrounding the West Chelsea clubs is fueling the rise of smaller, more exclusive clubs.

“Instead of owners operating a mega-club, now, they’ll buy two 2,500-square-foot spaces and do restaurant-lounges,” said Famularo. “We’ll be left with a handful of mega-clubs on the West Side Highway until the operators lose them.”

Live music venues, which are much easier to steer through the permitting and licensing process, have also been revived, said Picken. Newcomers include the Highline Ballroom at 431 West 16th Street and the 10,000-square-foot Rebel NYC near Madison Square Garden. In the future, he foresees a possible boon for mega-clubs in the outer boroughs, pointing to Club Exit in Greenpoint as a potential harbinger.

Even in Manhattan, nightclubs will never go away, said Bookman, since the 65 million visitors to local clubs every year far outnumber the tally for Broadway shows and sporting events.

“There’s a lack of coherent policy toward the clubs,” he said. “There’s no place that is inappropriate for $1 million condos, and we’ve empowered residents to decide what’s good for their block, not the greater whole. It’s shortsighted for the real estate industry to try and drive away something that draws tourists and is a great economic engine.”

Unlocking the clubs: ‘Key money’ deals more vital to city’s nightlife

By Laura Leu

Although New York City’s club-centric areas have been seeing families with strollers replacing frat boys with Stolis, nightclub deals are still being made. Only instead of acquiring new leases for the venues, many buyers are choosing to purchase existing ones by forking over “key money,” large upfront payments made to secure access to space.

While “key money” sometimes has an under-the-table connotation (stemming from its illegal use to obtain prized rent-controlled apartment leases) in the nightlife world, key money is perfectly legal. What’s more, the transaction can include an existing liquor and/or cabaret license to go with the lease — and these permits are more valuable today than ever.

“Due to the fact the community board has been more stringent and the State Liquor Authority has delayed the transfer of licenses, existing venues with liquor licenses — and especially cabaret licenses — have become far more valuable,” said Steven Kamali, a nightlife and entertainment consultant for Stevens & Co.

Still, licenses aren’t the only components that determine the value of key money. According to Kamali (whose deals involve key money “80 percent of the time,” he said), there are four main deciding factors: the venue’s location; the term of the lease; the extent to which the rent is below market, and finally, the venue’s furniture, fixtures and equipment (which includes its liquor and cabaret licenses).

There is no average rate for key money, but Kamali has seen a range from $100,000 for a small cafeacute; with a beer and wine license to as high as $6 million for a Midtown club. He stays mum on most of his transaction details, except for one that had already been published: the Star Room in the Hamptons, which he helped sell for $3.5 million. Of that sum, $2 million was attributed to the price of the land; $1.5 million was key money.

Will Regan, a partner with 3Sixty Hospitality and co-owner of several nightclubs and lounges, including Lotus and Los Dados, paid a key money fee in excess of $400,000 for The Double Seven, a 2,000-square-foot club in the Meatpacking District.

Although the space came with a liquor license, that wasn’t what attracted Regan. It was the below-market rent, which was only $6,000 when he acquired the place in 2005. “We paid quite a bit of money, but it was still cheap when you consider what the present value of the rent-savings would have been over 10 years,” explained Regan. “It was a financial decision. We did it purely for a return on an investment.”

It’s no surprise that the neighborhoods with the highest fees are the ones where the SLA has called for moratoriums on new liquor licenses, like West Chelsea, the Meatpacking District and the Lower East Side. But according to Regan, key money prices — even the ones that include liquor and cabaret licenses — have not changed much since he entered the business in 1990, aside from general inflation.

No matter, they are still some of the thorniest deals to make.

“Key money deals are the most difficult to make from a technical perspective because it requires more savvy about licensing, procedures, timetables and the political climate than, say, a boutique [clothing] deal,” said Rafe Evans, a broker with Walker, Malloy & Co. “And usually, it’s a troubled asset that’s being sold, so there can be sour grapes and ill-will between the landlord and the seller, and nobody is ever in a broker’s fee-paying mood, even though a broker is vital in mediating this touchy relationship.”

Evans said there are only about six to eight brokers in New York City who actively pursue these deals. (In his own practice, nightlife brokerage only accounts for 5 percent of business.) But key money isn’t all just a pain-in-the-neck procedure. One of the big perks is the immediate financial gratification: Brokers get paid their full commission (usually 10 percent) at the time of closing, as opposed to the short payout that normally accompanies a new lease. “There’s also a glamour factor,” said Evans. “Especially for young male brokers who like to rub elbows with club owners.” That means never having to wait in line at a nightclub. For many divos in this city, that is key.

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