Herald Square, the bustling mecca of New York City department stores, the home of Gimbels, Saks-34th Street, E.J. Korvettes, and the world’s largest department store, Macy’s, is undergoing a dynamic transformation.

Although the area has long been out of fashion — an overcrowded span of discount retail and fast food — real estate analysts say more than 20 office, retail, residential, and hotel development projects in the vicinity, combined with the prospect of a dazzling redevelopment of the current site of Madison Square Garden, will remake the neighborhood in the next decade.

“The office and retail markets in Herald Square and its environs are constantly tightening and improving as the major transportation hub nearby at Penn Station is expected to be expanded, improved, and eventually moved a block away,” a principal and director at Eastern Consolidated, Alan Miller, said. “The mega-development that is slated to occur in the next decade in this Manhattan office submarket has changed the course.”

One company that has a strong vested interest in the area’s success is Vornado Realty Trust, the largest owner of commercial and retail space in Herald Square. The publicly traded real estate investment trust is the owner of seven office buildings, a variety of retail sites and billboard signage, and the 87-year old, 1,700-room Hotel Pennsylvania, across the street from Madison Square Garden at 401 Seventh Avenue. Last week, it was reported that Vornado plans to construct a new 2.5 million square foot office tower on the site of the hotel, with large floor plates designed to accommodate trading floors.

A principal at Stellar Management, Robert Rosania, said, “Vornado runs the show in that submarket. Everything else is just deals.”

Vornado will soon close on the purchase of its latest Herald Square acquisition, Manhattan Mall, the former home of Gimbel’s Department store, which occupies an entire block on Sixth Avenue between 32nd and 33rd Streets. The building contains approximately 812,000 square feet of office space, 164,000 square feet of retail space, and 250,000 square feet of additional air rights, which can be used for the new development planned for the adjacent Hotel Pennsylvania site.

The chairman of the national real estate practice at Greenberg Traurig, Robert Ivanhoe, said, “With plans for the new Penn station and Madison Square Garden site, and then the further expansion of Midtown to the west, the plans for Pennsylvania Hotel make a lot of sense. But it would seem that the best strategy would be to wait until more has been established in this rapidly changing neighborhood to best maximize the opportunity and take advantage of the impending up scaling of the area.”

“Vornado, with leaders like Steve Roth and Mike Fascitelli will develop the right plan and timing,” he continued.

Industry leaders and prominent owners are optimistic about the resurgence of Herald Square and Penn Station.

The president of W & M Properties, Anthony Malkin, said his company would be redeveloping its holdings at 1359 Broadway, 501 Seventh Avenue, 1333 and 1350 Broadway, and 112 West 34th Street, upgrading space used by the garment industry into upscale office space.

“We are renovating and rebranding buildings including the Empire State Building with extensive retail, new and restored lobbies, elevators, windows and common areas. Rents are up, concessions are down; this is the transportation super hub, easy walk to Penn Station, Grand Central Station, Port Authority and all the north and south subway lines,” Mr. Malkin said.

A principal at Himmel + Meringoff Properties, Leslie Himmel, said “Many years ago the legendary Harry Helmsley advised me to ‘purchase buildings near the transportation hubs of Penn Station and Grand Central as they will not be getting on roller skates and leaving the neighborhood.'”

“We have owned property in the Herald Square area since 1985, primarily because we knew that it was a matter of time until the Herald Square and Penn Station neighborhood became redeveloped,” he said.

New construction of residential and commercial properties is in various stages of planning along Sixth Avenue, a stretch that has been dormant for years. Last year, Baruch Singer assembled and purchased a full block front on Sixth Avenue from West 30th to West 31st Streets for $117 million. According to trade sources, Mr. Singer’s original plans were to construct a mixed-use building that contained 300,000 square feet of residential condominiums. The New York Sun has learned that Mr. Singer is under contract to sell the site to another developer who plans to construct a 500,000 square foot building, which will likely include office and hotel components.

On the west side on Sixth Avenue between West 29th to West 30th Streets, J.D. Carlisle is planning a 500,000 square foot, mixed-use development that will include a full block of two story retail, a very large garage component, a Fitzpatrick Hotel and a condominium tower.

A great deal of residential construction is taking place all over Manhattan, but there is a spike in the number of new projects surrounding Herald Square.

Last summer, a leading developer from Italy, BIDI Real Estate Company, purchased the vacant assemblage of sites at 400 Fifth Avenue from a joint venture of Lehman Brothers and Yitzhak Tessler. The developer intends to construct a 500,000 square foot mixed-use tower with ground floor retail, luxury residential condominiums and hotel services on the upper floors. Construction is scheduled to start early this summer.

Next month, a mixed-use, 58-story tower at 131 West 31 Street, known as “The Epic,” will open its leasing office, and the first tenants are expected to move in before the summer. The tower is a development of a unique joint venture of The Durst Organization, Sidney Fetner Associates, and the Franciscan Friars. The project is divided into five condominium components. The major component, owned by the joint venture, is 458 rental units on floors 13 to 59. Twenty percent of the units will be “affordable.”

“The Epic” will also house a 77,000 square foot condominium that contains New York’s first Hope Lodge, which provide free overnight lodging for patients and families, and the regional headquarters of the American Cancer Society, which is relocating from its present location on West 56th Street. Hope will offer feature 50 patient rooms with private baths, shared family and meeting rooms, kitchen and laundry facilities, exercise rooms and other amenities. The third condominium is six floors owned by the Franciscan Friars, which will serve as mixeduse facility and include residences for the friars.

The 5,000 square foot component located on West 32nd Street will be owned by the joint venture, which expects that a restaurant will lease this space. The fifth condominium component is likely to be underground garage, leased to a local operator.

Last month, the first tenants moved into the 50-story, luxury condominium tower at 325 Fifth Avenue, across from the Empire State building. The developers, a joint venture of Douglaston Development and Continental Properties have sold all 250 luxury units. The tower was built on the former site of three six-story buildings and parking lot, and has made a dramatic impact on the neighborhood. A few blocks away at 309 Fifth Avenue, construction is scheduled to begin soon on a new luxury condominium development.

The president of Bellmarc Realty, Neil Binder, said “When I see the activity in Fifth Avenue around the Empire State Building, I am convinced that this entire area has fulfilled the qualifications of a basic investing premise that I have encouraged investors to look for over the last twenty years. This principle focuses on identifying two areas of prosperity and then seeking to invest in the area between the two.”

“To the south, the Sixth Avenue, Chelsea corridor is now one of the most active development markets in town. To the north, the 42nd Street corridor is effectively complete with some of the priciest and most prestigious properties in the city. Herald Square and Fifth Avenue are the bridge that investors should be salivating to fill. I predict that this area will be the hottest area in the city for the next five years,” Mr. Binder continued. The Herald Square and Penn Station neighborhood remains one of the most active retail destinations in New York City. Retailers include the world’s largest department Macy’s, along with H & M, Victoria Secret, Gap and hundred’s of local and nation chains. The Gap store located across from Macy’s is reportedly the company’s highest grossing store in the nation.

“Retailers are seeking out locations in Herald Square based on the demographics of the pedestrian traffic and rents for retail space have escalated dramatically,” a director at Cushman & Wakefield, Joanne Podell, said. “Across the street from Macy’s two years ago, a rent of $350 per square foot was considered high. Today as much as $575 is achievable.”

Last October, a joint venture of SL Green Realty Corp. and Jeff Sutton of Wharton Realty entered into a lease with Apple Computer to open Manhattan’s third Apple Store on West 34th Street between Fifth and Sixth Avenues. The annual rent for the four-story store with a total of 30,000 square feet is about $5.56 million.

A total of 1,700 reasonably priced hotel rooms will be lost when Vornado finally closes the doors at the Hotel Pennsylvania. Many of these rooms will be replaced by a number of limited service hotels popping up around Herald Square. This month, the McSam Hotels will open a 70-room, limited service hotel at 373 Fifth Avenue, on the corner of 35th Street and Fifth Avenue. New hotels will also open at 57 West 35th Street, 63-67 West 35th Street, 60 West 36th Street, and 38-46 West 33rd Street. A nine-story office building at 1265 Broadway, known as 890 Avenue of the Americas, has been leased to a hotel operator to convert into a corporate and extended-stay hotel. An executive director of Cushman & Wakefield, Jon Caplan, said Herald Square “is poised for a renaissance given its central location, proximity to a plethora of transportation options, new residential development, and the retail transformation that are now underway.”

Michael Stoler is a contributing editor to The New York Sun, is a television broadcaster, and senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com