Aerospace woes take a toll, but LAX neighbor has bright spots.

EL Segundo has come a long way since the days when its oil refinery dominated the community. But according to the Los Angeles County assessor's office, oil remains a very big deal.

As of Jan. 1, El Segundo's overall property values fell 2.8 percent from a year earlier, to $7.6 billion, making it the only city in the county to show a decline.

Blame the refinery.

"The value of the refinery equipment is not worth today what it was last year," said Gilbert Parisi, director of administrative and assessment roll services for the L.A. County assessor's office in explaining the $174 million reduction in value of the 92-year-old Chevron USA Inc. facility.

Ironically, the decline comes at a time El Segundo, with a population of just over 16,000, has seen growth in other areas, especially residential real estate. The assessor's report shows that the value of residential properties jumped to $1.2 billion from $858.1 million a year earlier. That represents 16.4 percent of the city's assessed value, up from 14.8 percent in 2002.

"Because the residential community in El Segundo is so small and so concentrated in one area, they are all appreciating," said Mary Strenn, the city manager. "El Segundo is being discovered, so to speak."

The city also remains the hub of the county's defense/aerospace industry, so projected increases in defense spending are expected to be funneled into the area. "That market should benefit more than any other market in L.A. County from increased defense spending," said Kevin Shannon, senior vice president for office and industrial investments at Grubb & Ellis Co.

Aerospace presence

Oil, of course, is what put El Segundo on the map.

Chevron (then Standard Oil Co.) fired up the refinery in 1911--its second after its operation in Richmond, Calif.--and at a time when the area was little more than patches of strawberry and melon fields. The city, which incorporated in 1917, derived its name from the company's presence--"El Segundo" is Spanish for "the second."

El Segundo remained a one-industry town until 1930, when the opening of the Los Angeles Municipal Airport (later LAX) served as a magnet for many aerospace firms.

The airport's presence was the springboard for attracting many aerospace firms during the 1940s and 1950s, including Douglas Aircraft Co., Hughes Aircraft Co., North American Aviation Inc. and Northrop Aircraft Inc.

Over the years, this inevitably led to broader commercial development in the area, most recently involving technology companies. But the decade-long slump in aerospace--only recently revived--along with the dot-com collapse, has taken its toll.

In the second quarter, for example, the El Segundo/Beach Cities submarket had a 26.1 percent vacancy rate, second highest in the county, and higher than the 23.1 percent level for the like period a year earlier, according to Grubb & Ellis Co.

There are scattered signs of life on the commercial front. Continental Development Corp., which completed the 288,000-square-foot Atrium at Continental Park on Rosecrans Avenue during the first quarter, signed at least 15 tenants last year. "The tenants are attracted to the quality of the buildings, the campus park-like setting and the proximity to the freeways, LAX and the executive housing in the beach cities," said Robert Tarnofsky, director of real estate for Continental.

Still, the mixed commercial results underscore the continued economic importance of the Chevron refinery--despite the many environmental battles over the years, as well as the facility's ungainly presence that dominates El Segundo's southern border.

The refinery has been fined numerous times for clean air and hazardous waste violations. Mostly notable was the discovery in 1988 that the refinery had leaked as much as 252 million gallons of oil that seeped into the groundwater supply underneath.

By 1994, the company estimated it was recovering 5,250 gallons per day, with the expected amount to total 21,000 gallons per day in the years to come. It reportedly has cost Chevron about $100 per barrel--there are 42 gallons per barrel--to clean up the leaks.

The refinery's lower property assessment, announced last month, is not based on the land or buildings but rather a decline in the value of the equipment and other operational assets fixtures. That resulted in the value of the property to drop to $1.9 billion, from $2.1 billion a year earlier.