Daneyal Mahmood stands next to his gallery’s featured work “Martyr,” by artist Guerra De La Paz. Mahmood believes he would be able to purchase his space when his lease comes up in 2011, although other mid-range gallerists in the building fear high prices will drive them out.
‘Gallery condos’ mark shift in changing Chelsea canvas
By Chris Lombardi
When Daneyal Mahmood first came to W. 25th Street five years ago to open his own gallery, “the block was sort of desolate,” said the artist and gallery owner. But by last year, when Mahmood took space on the third floor of the gallery-rich building at 511 W. 25th St., he could already sense a change. In the wake of the 2005 West Chelsea rezoning, which allowed for extensive residential development in the former warehouse district, “desolate” was the last word on his mind.
So when Mahmood received a letter not from his usual landlord, Jack Fuchs, but from a new company called “25th Street Art Partners” this month, he guessed what the next chapter in the story would be.
“Gallery condos,” he told Chelsea Now. “Word is, they’ll ask $1,000 a square foot.” And when his lease comes up in 2011, Mahmood said, he’ll likely end up paying $1.7 million for his space, because “that’s how the world works.”
Last week, a group of investment firms collectively called Cardinal Real Estate Investments announced that they had paid $97.5 million to purchase 511 W. 25th St. and its two adjacent buildings, most of whose tenants are small- to mid-sized galleries. While many of these gallery owners reported that they hadn’t heard anything about the sale beyond it taking place, others said that the new owners had already asked if they would be interested in buying their spaces in a co-op conversion.
Many who spoke to Chelsea Now said they were deeply unsure whether they would be able to meet the new owners’ terms when their leases run out—but all agreed that the high-price sale is just the next step in a trend that has already displaced many more modest spaces. While the buyer’s announcement of the sale stated, “We are very excited to be a part of the best neighborhood in Manhattan,” current opinion seemed split as to whether the area’s galleries would survive their arrival.
The three buildings at 511-519 W. 25th St., 521-539 W. 25th St., and 541 W. 25th St. have long been held by Jack Fuchs, owner of Whitehall Storage Co., which occupied less and less space in the buildings as time went on. The buildings’ value had increased from $1.4 million in 1993 to $2.3 million in 2007, but the price paid by Cardinal Real Estate Investments was not surprising to anyone who has been watching the local market.
‘Beginning of a shift’
Cardinal’s announcement of the deal was full of references to the neighborhood’s new assets. “The pedestrian artery between the meat-packing [district] and the rail yard will have a greater positive impact on the area than most are expecting,” said company founder Kyle Ransford in a press release. “As a neighbor of the high line, we are excited to contribute to the artist and high line communities.”
The statement was referring to the burgeoning High Line Park, an elevated railway conversion that when complete, will link the now-chic former Meatpacking District and the yet-to-be-determined Hudson Yards. The High Line Park, visible from many of 511 W. 25th St.’s upper floors, and the already-active Hudson River Park are often cited by brokers selling multimillion-dollar condominiums in the nearby “starchitect’s row.” These include Annabelle Seldorf’s 200 Eleventh Avenue, Jean Nouvel’s NouvelChelsea at 100 11th Ave., and Della Valle Bernheimer’s 245 Tenth Avenue—all of which, despite special zoning rules designed to keep galleries in those old former warehouses, increased the properties’ value in the eyes of investors. “A wholesale second transformation of the area is under way,” Ransford noted in the statement.
The first transformation occurred when artists converged on those vacant buildings after Soho and Upper West Side prices became unaffordable for studio space (see Chelsea Now’s Dec. 6 article, “Chelsea still center of art world, but LES beckons”). To many district artists who survived those earlier displacements, news about the sale sounded awfully familiar. “I’ve been through this movie before,” said Miles Manning of the Elizabeth Harris Gallery on W. 20th Street, who once showed at Leo Castelli on W. 77th St. and 420 Broadway in Soho.
“It’s the beginning of a shift,” agreed Juan Puntes of the White Box Gallery, which since 1998 has operated out of 525 W. 25th St., part of the Fuchs property. “But this has been going on for a while,” he added. “Most of the galleries that have come up in the last couple of years have been international, like Arario [which has 7,000 square feet at 521 W. 25th]. They have the backing to be able to afford the rents the owners are now asking.”
Last week, Trevor Stahelski, manager of the newborn “25th Street Art Partners,” stopped by a few of the galleries to say hello. Brenda Taylor, whose gallery has been at 511 since 2000, told Chelsea Now that the new manager was quite warm, but that she was still rattled—especially when told that she now had to mail her rent check to a post office box in Pennsylvania. “That was when I started to get nervous,” said Taylor. “Why Philadelphia?”
Cardinal Property Investments Inc., owner of that Philadelphia address, is a subsidiary of the San Diego-based Cardinal Real Estate Investments. The latter’s Website boasts that Stahelski, like other senior Cardinal partners, specializes in “overseeing property management of the individual assets from acquisition through stabilization and disposition.” Other Cardinal properties mentioned on their site state that the company consistently increases rental income from some buildings that they consider having “untapped value.” In the case of Katherine House, a rooming house near Columbia University where units often have brought in rents averaging $700, Cardinal is currently “repositioning the property,” the site tells investors.
In the purchases on the 25th Street block, Cardinal also marshaled in support from a host of influential capital firms. Stahelski, described in his company’s announcement as Cardinal’s “New York Partner,” named as investors the international Carlton Group, commercial real estate investors RAIT Financial, and Halcyon Real Estate Investors, a subsidiary of the hedge fund group Halcyon Asset Management.
Stahelski was careful to note, “we are very excited to be part of the best neighborhood in Manhattan,” because they are committed to “community and maintaining the sense of place within each location.”
$1,000 per square foot
To Taylor, Stahelski’s arrival meant that the rules were about to change. Stahelski then further fueled her fears by telling her that Cardinal planned to take 511 co-op, allowing each gallery then to own its own space. “He asked if I wanted to be on the list,” Taylor said.
Asked if he had named a price, she said no. However, she added, “I know what the going rate is.” Taylor’s gallery sells paintings with an average price tag of $8,000-$10,000. She noted most of the building’s art dealers sell for similar “mid-range” prices. Gallery condos are “not feasible with the price range in which we sell our work.”
Taylor added that with her business taking in only between $500,000 and $1 million per year, paying $1,000 per square foot for the space, according to estimates, would be “impossible.”
Even in the current boom times for art, she added, “this is still not a business where it would make sense to buy our space for $1.3 million.”
The buzz among gallery owners is that Cardinal is looking for relatively quick profit, Taylor said. “The rumor is that they want to flip the building for $30 million more than the sale price within three years,” she explained. “They can flip it with saleable condos.”
Kat Griefen, director of the well-known women’s non-profit AIR (Artists in Residence) Gallery, said her board had already decided to leave 511 W. 25th St. before the news came down about Cardinal. They saw the rents new neighbors were paying, she said, and decided they could better spend their limited funds on what they do best: providing for women artists a generous, professional exhibition space, which didn’t have to be in the hottest spot in town. “We still hope to be in Chelsea,” she said. “But not here.”
Next door to AIR, the Daneyal Mahmood Gallery boasts a very diverse group of artists, like the Cubans who had pulled together its current exhibition “Guerra y Paz.” Mahmood told Chelsea Now that his buyers come from around the world, from places as far away as Dubai, placing his space in the “international” category mentioned above by the White Box’s Puntes.
Mahmood’s lease runs till 2011, he said, and he has already priced out what his space would cost as a condo: $1.7 million. He’s guessing he’ll pay it, he said, as long as the current gentle recession doesn’t cut into the ability of his customers to keep buying. But he bemoaned the impending loss of AIR and some other more modest galleries, some of whom have already decamped to the Lower East Side. “You don’t want it to get too homogenous around here.”
Asked if he was surprised that the block no one wanted in 2000 was now too hot to touch, Mahmood laughed. “I’ve been in New York 30 years,” he said. “Nothing surprises me.”
Uncertain future
Most of the galleries whose studios make up the 172,500 square feet in the Cardinal purchase said that they have no idea what to expect next. “I hear they’re bringing in new staff next week,” said Matt Garson, who moved his Garson Fine Art in to share space with Brenda Taylor a few months ago. “Maybe we’ll learn something then.”
While Taylor waits nervously for the next stage, Puntes predicted a more bleak future for the buildings in 10 years “There will be no galleries here. They’ll raze the buildings and put up a tower with a fantastic view.” Others, however, were more willing to allow for a kind of creative chaos to shake up a gallery scene they find far too predictable.
Hudson, curator of Feature Inc., moved to 530 W. 25th St. from Soho in 1999, but relocated again just last fall to Stanton Street on the Lower East Side—and not just because of the rents. The famed omnipresence of galleries in Chelsea so hailed by neighborhood boosters, he said, was not good for Hudson’s work.
“There’s such a concentration of galleries—it creates a kind of hysteria,” he said. “It’s too homogeneous. Even the diversity grows less diverse.” Something like the Cardinal deal, he added, could end up being just the jolt the hidebound community needs.
“Maybe it’ll be a good thing,” he said. “Some galleries will leave. Some will fold. And some,” he brightened, “No doubt some new ones will pop up in their place.”
