Fashion Center dresses for office use.

Now that Times Square has turned into a pricey, corporate office location, and rents in Grand Central and the Plaza District are climbing into the $40s, $50s, $60s and higher range, both tenants and property buyers are turning southwest.

What they are discovering are buildings near the great transportation offered by Penn Station and the Port Authority Bus Terminal; subway stops along Sixth, Seventh and Eighth avenues; and fairly decent B to C buildings with good bones and room for improvement.

What they are also finding are most rents well under $20, which brokers say can only go up. And that is leading to many new investments in building systems, lobbies and streetscapes, as well as new purchases of the buildings themselves.

"That's an area screaming for development," said broker David Brimlow, whose firm, Brimlow Realty Corp., also manages commercial and residential properties. "But don't come in there and build Class A. Convert to nice B."

With rents generally anywhere from $15 to $20 a foot, a decent job, he believes, should fetch anywhere up to $30 a foot.

"There are beautiful lobbies - they need 24-hour service and lobby upgrades - but the spaces are fabulous and can easily be converted to nice offices," said Brimlow.

Led by Vornado's numerous investments around Penn Station through Mendik Realty's portfolio of Two and Eleven Penn Plaza and the leasehold at 330 West 34th Street; the Riese Organization's 160 and 162 West 34th Street, and 494 Seventh Avenue; and the real estate investment trust's dramatic purchases of the leasehold at One Penn and the Hotel Pennsylvania, other prominent buyers are trying to capitalize on the added value soon to come.

The area south of 42nd Street and generally west from Broadway is variously known as the Garment Center, the Fashion District, Penn Station, or lately, Times Square South. The actual Fashion Center BID area is generally from 35th Street north to 41st and from Eighth Avenue to Broadway.

It's the dynamic turnaround of the Deuce and the numerous construction cranes that has, of course, led to the brokers becoming only too happy to use the cache overflowing from the Crossroads of the World.

When the prestigious law firm Skadden Arps Slate Meagher & Flora needed space for file and back office uses, but didn't want to pay the more than $55 a foot to get more room at its upgoing new 4 Times Square home, the counselors didn't have to look far to find the space they needed at 1460 Broadway.

This traditional textile building was a mere one-block further south at 41st Street, and had been purchased as part of a portfolio by TrizecHahn, a Canadian-based, New York Stock Exchange-listed real estate group that is turning the building from fabric to office facility.

In order for the law firm to lease 188,000 square feet in a 15-year deal, TrizecHahn has had to work with 20 material traders that needed to find new digs.

Further lifting the area into the cache of office pioneer status was the move of Bates Advertising from the Chrysler Building into 200,000 square feet in the base of the George Comfort property at 498 Seventh Avenue.

In January, CoStar reported Bates took an additional approximately 24,000 square feet on a higher floor.

"They still have Victoria's Secret's offices, and while they are not precluding fashion tenants, they are not excluding them," said Sandy Fagin, a broker with Murray Hill Properties who conducts a real estate radio show from a nearby Seventh Avenue building and keeps his eye on area opportunities.

The fashion tenants in the Comfort building are, for the most part, being bumped upstairs, relayed Jeffrey Mann, who operates his family's 69-year-old Garment Center brokerage firm, the Mann Group, and also publishes building-by-building showroom guides and The Fashion Mannuscript, a glossy which details the people, restaurants and charity events supported by that industry.

"Everyone is looking to the area," Mann said. "You can still make your deal in the mid 20's, and there aren't many places left in the city you can get that."

This is a trend that the BID is tracking and noticing, said Barbara Randall, executive director of the Fashion Center BID. "We started to feel the edges of it 18 months ago, but in the last six months, there has been a sea change in the way people are seeing the district."

The influx of office tenants and the opening of the new Marriott Courtyard have acted as a catalyst for other turnabouts, Mann said. When he worked in his 1440 Broadway offices over a March weekend and went out for lunch, the relocated restaurant Mustang Jack's, now at 147 West 40th Street, was packed, and so were the streets.

"You never saw this area bustling like that on a Saturday or Sunday," said Mann, impressed with the new street life.

He also pointed to the Crunch gym at 1385 Broadway, which is expected to open next month. "They never had a gym here," Mann emphasized. "They wouldn't have a gym opening at 5:30 a.m. if it weren't safe."

Advertising firms previously led the march into Park Avenue South, the Flatiron District and south Chelsea. These were areas that earlier coddled the graphic artists, photographers, musicians and small presses that serviced the very same ad firms, as well as engineers and architects.

Many of these are firms that, by their very service nature, don't usually have client visitors, but instead venture out to meet the clients at their own Class A offices.

The edges of the Garment Center have already attracted building architects such as Der Scutt, who long has had a bright loft space on West 28th Street; and Costas Kondylis, who will move to a space on 27th Street this summer.

The former McGraw Hill Building at 475 Tenth Avenue at 36th Street, owned by the Adler Group, is loaded with well-known architects such as Richard Meier, Gwathamy Siegel, and Buttrick White & Burgis. Last summer, Ian Schrager Hotels moved into one of the 17,500 square-foot floors, where the asking rent on a remaining floor is about $18 a foot.

"It's one of the few places you can get upper teens per square foot, and there are some tenants willing to go to untested areas in order to keep their rents at a reasonable price," said Fagin. Earlier 90's trend spots like Hudson Square, he noted, have rents now approaching $35 a foot.

Typical of the new tenants is Quinn & Co., a public relations firm servicing hotel and real estate clients that just moved to a building on West 35th Street from the Flatiron District. Its long-term lease became due and the rent would have to jumped from $11 to $22, said Vice President David Platter.

By moving to the mid-block loft building, they were able split the difference and rent approximately 2,200 square feet for about $17 a foot. The 100,000 square-foot building is one of several similar properties on that block with availabilities and rents ranging from $10.50 to $20 a foot, and is currently listed in CoStar as being close to 100 percent full.

"We feel like pioneers," said Platter. "We moved into the Flatiron District when it was a mess, and now its desirable, and now this is the up and coming area. You get cheap food and you're close to Macy's, and we got to build out a beautiful new space. And now we have room for luxuries like our 'Dream Room.' It's a place for dreaming and screaming, and we use it to brainstorm and strategize, or just to brew a cup of tea. We couldn't have afforded that if we stayed in the other neighborhood."

If there were space at the 240,000 square-foot 1001 Sixth Avenue at 37th Street, owned by a Helmsley-Spear group led by Alvin Schwartz, a tenant might only pay $18-$20 rents, said Mann. "It's perfect for an ad agency," he added, "and its close to Penn Station, Grand Central or the Bus Terminal."

When tenants at 310 Madison Avenue at the corner of 42nd Street got their dispossess notices from Harry Macklowe, they were taken aback. Rather than finding rents similar to what they were paying in the high-teens and low $20's, they found nearby spaces in the Grand Central Station area bottoming at $30 a foot.

"They got sticker shock," said Brimlow, a broker who has worked and is still working to relocate a number of tenants.

It's that city center sticker shock, however, that is driving new investment and new tenants to Fashion Land.

Available Land

While areas closer to the Javits Center and Lincoln Tunnel are desolate and more industrial, brokers are beginning to list long-dormant development sites.

Noel Berk and Barbara Stone of Cushman & Wakefield have a 175,000 square-foot buildable development site listed on the east side of Tenth Avenue between 37th and 38th streets.

The Carlton Group is working on three sites between Tenth and Eleventh avenues, also near the Javits Center, that are owned by Arthur Imperatore and are already preapproved for hotel, residential, community and/or parking uses, depending on the site.

One site between 36th and 37th streets is designated for a 243,469 square-foot hotel and a more than 385,000 square-foot residential building. Another site between 37th and 38th streets can accommodate 66,000 square feet of garage space, and the last, between 38th and 39th streets, can be developed with a 101,515 square-foot community facility.

A possible stadium or Madison Square Garden relocation south of Javits and a possible Long Island Railroad stop at the West Side Highway also has speculators drooling.

Building Sales Fuel Improvements

Meanwhile, new ownership is bringing rehabilitation to some of the long-time family-owned and moribund properties.

Max Capital, better known for its big buck purchase of the prominent 230 Park Avenue from Leona Helmsley and 350 Madison from Conde Nast, which is being added to, recurtained and repositioned, is about to close on another huge building in the Garment Center.

Last fall, the equity fund managed by N. Richard Kalikow and Adam Hochfelder that has investors including Robert Bass, closed on a $52.5 million grab-bag portfolio of properties long-owned by the Melohn family.

While there was one Downtown building, the others were 63 West 38th Street, 62 West 39th, 135 West 36th Street, 255 West 36th Street and 248 West 35th Street - all mid-block, Garment Center pieces.

"It's a great area," said Hochfelder. "We own a million square feet down there right now, and are converting all the Garment Center buildings to office, and will probably double the rents."

Jeffrey Landers, a Manhattan-based commercial broker who heads his eponymous company, said all of those buildings are well situated, and are right off Sixth Avenue. He toured 248 West 35th Street early in March and was impressed with the repositioning already underway.

"There was a false ceiling in the lobby that has been removed, and you can now see the original ornamental design that was created by skilled craftsmen. It's work you just don't see anymore," he recounted. "They are putting in all new windows, upgrading the elevator, and going from Garment Center to very, very nice office space."

This week, Hochfelder said they will close on a $225 million purchase of the former John Hancock Building at 450 West 33rd Street, a 1.4 million bulky monster that was the site of the old Sky Rink and now houses, among other tenants, the Daily News, WNET, and US News & World Report upon each of its 16,127,000 square-foot floorplates. Chase also inhabits 400,000 square feet.

It has the fourth largest floorplates in the city, said Hochfelder. "[They] are the most desirable floorplates, and we have big floorloads and electrical capacity. We have two fiber optic loops and every Internet carrier," he boasted.

The microwave-ready 24-hour building is scheduled to become the new home of DoubleClick, one of the city's newest and growing Internet firms. It is also the recipient of Industrial Development Agency largess in the form of sales tax breaks for equipment going into its new space.

"I no longer know what a manufacturer is. Is a software company a manufacturer?," asked Marvin Shulsky, another area owner. It's not that Shulsky wants to disparage the DoubleClick benefits deal, made through an agency that is supposed to help keep manufacturing jobs in the city, but he's highlighting a problem for area building owners that are saddled with the rules for what is known as the Garment Center Preservation District.

District Rules Vague

Designed to keep blue collar jobs in the city, that manufacturing district is an overlay on a central portion of the zoning map that makes it illegal to rent out certain midblock buildings for simple office space without ensuring comparable space is available for manufacturers.

"It has been unsuccessful," said Michael Slattery, a senior vice president of the Real Estate Board of New York (REBNY), of the Preservation District.

REBNY has been examining the issue because of member concerns, and is finding the protections have had a negative economic impact on both the city and the owners.

The prohibition has resulted in reducing building incomes because the owners either rent to tenants that can't pay market rents, rent to office users in the hopes no one notices, or conscientiously leave spaces empty because the available tenants don't meet the zoning requirements.

With property tax assessments technically based on building income and expenses, "That becomes a loss of tax dollars in New York," said Slattery. "We think the zoning has become unsuccessful and needs to be reevaluated."

Shulsky says many owners are in a quandary because they simply want stable tenants that stay and pay.

"The small garment tenants are very volatile," he said. And of course, the larger, more responsible tenants want avenue buildings that are on wide streets and exempt from the requirements.

He also complained about the wording of the Special District rules, which he says some owners have interpreted to mean they can rent up to 50 percent of their spaces for office use.

"It's poorly drafted and it's silly," he said.

In general, owners have to set aside an equivalent amount of space in that building or another building that can handle the elevator, column and load requirements for manufacturing, in order to rent another space to an office user. They can apply for a special permit to obtain an exemption from the rules, but in reality, owners don't always do so.

The District was created, Shulsky recalled, to appease the ILGWU - the International Ladies Garment Workers Union- and was instigated around the time the Times Square redevelopment plan was crafted and many buildings were to be condemned.

"They were afraid it would throw their workers out of work, and would gentrify the area," Shulsky said of a fear that is ironically now fueling the movement of office workers into the heart of the Garment Center.

The changes in the way people conduct business, and the economic changes to both the city and the country, have also hastened the decline in the number of Garment Center manufacturing firms.

Many jobs were lost by highly paid city workers when companies moved their manufacturing groups to overseas and out-of-state sites with dramatically lower pay scales for work forces.

"There used to be many showrooms that don't exist any more," Shulsky sighed. "There was a time during Market Week you couldn't get a ticket to a Broadway show."

Today, instead, a salesperson or buyer might get on a plane and travel to the chain store's headquarters in the Midwest, or visit a factory in Taiwan, or conduct business over the Internet.

While goods are financed, packaged, distributed and advertised in New York, little if anything is actually manufactured here, he noted.

"To think that is going to change by the enactment of a zoning resolution is worse than silly," he said.

Among the stated goals of the Special Garment Center District, established in 1987, are to retain adequate wage and job producing industries; preserve apparel production and showroom space; limit conversion of manufacturing space to office use; and conserve the value of land and buildings, and thereby protect the City's tax revenues.

"If there are places with cheaper rents, even with the zoning, in the end it's who can manufacture the dress cheaper," said Randall of the BID. "There are still many areas of the city where rents are even cheaper." Garment makers have already moved to both Sunset Park and Long Island City, she added.

Meanwhile, the reality of designated spaces and low rents is impacting the Fashion Center's capital improvement plans.

"We've been asking our owners to please upgrade their buildings, and we'd like them to do their facade and create better lighting and fix the sidewalks, but many of them are loathe to improve the building if it's a factory when they can't get higher rents," she said.

The Special District has been around for awhile, but the city's economy continues to evolve, observed Paul D. Selver, a zoning and land use partner with Battle Fowler.

"Under the circumstances, it might be appropriate to revisit the provisions and assess to see if [the rules] provide a valuable protection for manufacturing," he said. "If they don't any more, then the zoning regulations ought to look to the future and promote the uses, like office, that are moving in."

A few years ago, there was a problem with a Donna Karan space on West 40th. "They were challenged because a lot of [the space] is showroom, and a lot of their designing is done on computers," recalled Randall. "The city walked in and they didn't see tons of sewing machines, but did see tons of computers." The BID worked with the city to define what is "manufacturing."

In fact, the word "computer" doesn't even appear in the zoning text. "If you are developing software, and packaging it and selling it, at least re-define what is production," suggested Randall, who would like to see some revisions to the text so it is clear and fair for both owners and tenants.

But she would also like to see some leeway so that owners don't have to break the rules by renting to an unauthorized use group when a Garment Center manufacturer doesn't exist.

At the same time, officials will have to weigh what will happen when current manufacturing leases come up for renewal, and the ownership wants to raise the rent and possibly replace them with a higher paying office user.

To that end, REBNY is hosting a committee breakfast this week to discuss the issues.

"The market forces are what they are," said Randall. "You can do something to help the industries and make it a better environment, but if the market is going down one road and you're on another, there is not going to be a match."