Clothes Quarters
After suffering through some dark days in the early 1990s--first after the Los Angeles riots, then when Mexico’s peso took a dive--downtown’s Fashion District is experiencing a renaissance. Foot traffic in the 56-block district is up, thanks to the rebounding economy and a 2-year-old “clean and safe” program that has tackled trash and crime, two persistent problems that once chased away customers.
The number of wholesale showrooms that cater to buyers in the garment trade is growing. Many landlords who once slashed rents to fill empty shops have more tenants than they can oblige and are building new space to handle the overflow.
“We don’t have any empty stores,” said George Golshan, whose firm develops and manages buildings in the area. “The market has really picked up.” Just one year after completing a 22-showroom center on Santee Street and Pico Boulevard called the Santee Collection, his firm is constructing a 9,000-square-foot addition.
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A block away, another developer has completed a peach-colored stucco extension to the popular Santee Alley retail bazaar. And on San Pedro Street, building owners have begun sprucing up the fronts of their stores, repainting and hanging awnings to attract a growing number of South Korean garment wholesalers who are spilling east near the hulking yellow and aqua San Pedro Mart.
But even these new developments haven’t sated the demand from swelling ranks of garment traders. “There are more people producing than there were 10 years ago, or even five years ago,” said Paul, a clothing manufacturer on 11th Street who asked not to be further identified.
Indeed, despite the loss of manufacturing jobs to sewing shops overseas, employment in L.A.’s apparel industry has grown, hitting an all-time high of 114,900 last year compared with 91,500 in booming 1987, according to Jack Kyser of the Economic Development Corp. of Los Angeles County. And growth doesn’t appear to be slowing down--almost 8,000 more apparel jobs have been created since February 1997.
That means more competition for customers and a shrinking supply of showroom space, business owners say. To land his prime spot on 11th Street several months ago, Paul had to act fast. He cut a deal for the space before the previous tenant had even left.
“If I hadn’t taken it, someone else would have,” he said.
That’s quite a change from just two years ago, said Fred Sharifi of women’s sportswear maker Micci.
“Two years ago, I had five different choices on this street,” he said. “Now there’s no space. It’s a landlord’s market.”
With rents and property values rising, some property owners have decided it’s a good time to sell their buildings for top dollar, said Marianne Giblin, executive director of the Downtown Property Owners Assn.
One longtime garment industry owner cashed in his chips recently, auctioning off 11 single-story wholesale showrooms on Main Street’s “accessory row” to a Los Angeles investment partnership for a whopping $9 million, or $128 per square foot, the price of some suburban office buildings.
The deal raised eyebrows in this tightknit community, not only because of the lofty price tag, but because it was purchased by investors who owned no other property in the district.
“All of the buyers typically come from this area,” said real estate broker I. Hassan of Quantum Associates. “It’s hard to try and explain this market--with its diversity in rents--to others.”
Instead of the big real estate investment trusts or pension funds that own so many other commercial properties in Los Angeles, garment district real estate kingpins are typically importers, manufacturers and retirees. These property owners often make their money by buying and retrofitting warehouses in hopes that garment traders will lease their buildings at triple the going rate for other uses, said Bradley Luster, managing partner of downtown brokerage Major Properties.
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Although wholesalers can be unstable tenants (some file for bankruptcy protection multiple times), they do pay some of the highest rents in Southern California. They can afford the rent because they can usually sell a healthy amount of merchandise to the throngs of wholesale buyers who happen by on the district’s sidewalks.
In Santee Alley, where retailers sell to the public and not just bulk buyers, about 1,000 people pass through the bazaar each hour. On the streets immediately surrounding the alley, the average is 850 per hour, said Giblin, who also chairs the Fashion District’s business improvement district.
Rents in the showroom and retail spaces on the ground floor of these buildings run anywhere from $1 to $10 per square foot, depending on the block. Prime corners for women’s wear, such as 11th Street and Maple Avenue, are the most expensive, garnering higher rents than Beverly Hills’ famed Rodeo Drive, according to Hassan.
Moreover, many landlords here charge tenants “key money,” or financial consideration paid upfront to secure a prime spot. In some cases, this nonrefundable “deposit” can run as high as $40,000, Hassan said.
The fee, which has its roots in Asian real estate practices, fell by the wayside in the early 1990s when the peso plunged, sewing operations started moving to the border and many Mexican buyers stopped traveling to Los Angeles.
At that time, many shops stood empty and rents dropped 20% to 30% annually, by some accounts. Crime scared buyers and landlords alike, and homeless encampments dotted the streets. It got so bad, said business owners, that most buyers refused to venture outside the enclosed California Mart or New Mart. Some wholesalers even started talking of moving to a new center in Hawthorne or to the Pacific Design Center in West Hollywood.
“There were many firms that felt that prices were too high for what they were actually getting downtown,” said Goetz Wolff, a professor of public policy at UCLA.
To turn things around, property owners banded together and taxed themselves to raise money for a business improvement district. The $2-million program, launched at the beginning of 1997, was used to hire bike patrol officers, collect trash and market the area’s cleaned-up image to shoppers through trolley tours, street banners and a Web site.
“It really has made a difference,” said Moshe Aflalo, a shoe importer and local landlord. “It’s not just the people living around downtown that are coming here. It’s more of a melting pot.”
Along the way, the district has gotten several new banks, a couple of additional fast-food joints and a whole new group of buyers who come from as far away as South America, Canada and the Soviet Union.
And Giblin says the district’s small shops are now not only getting a big “suitcase trade,” or foreign buyers in a hurry to buy large quantities of a few items, but are getting orders from department store buyers who are once again venturing out of the enclosed merchandise marts in search of cheap, trendy items.
“It’s taken time to chip away at the psyche of Angelenos,” Giblin said of her group’s efforts to promote the area. “But there’s a buzz out there now.”
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High-Rent District
The downtown Los Angeles Fashion District contains 56 blocks of wholesalers, manufacturers and retailers, selling everything from menswear to purses to fabric. The shops may look modest, but some of the rents are higher than space on Rodeo Drive.
