Arco downsizing represents latest blow to downtown; speculation swirls that oil giant may leave Arco Plaza.

The local commercial real estate industry is eagerly awaiting news about Atlantic Richfield Co.'s future real estate plans, including word about whether the oil giant plans to retain its corporate headquarters at Arco Plaza in downtown Los Angeles.

On July 18, Arco announced another major restructuring. Arco, the largest publi company in Los Angeles County, said 2,000 employees companywide will lose their jobs. Approximately 400 of the layoffs will affect the 1,600-person corporate staff, the vast majority of whom work at Arco Plaza.

The restructuring means Arco will likely downsize the amount of office space it occupies in downtown Los Angeles. A partial or total withdrawal from downtown L.A. would be a further blow to that overbuilt office market, where high vacancies and low rents have persisted for years.

Typically, real estate brokers estimate the amount of office space a company requires based on a ration of four office workers for every 1,000 square feet o office space. Given that formula, Arco is likely to downsize its occupancy at Arco Plaza by about 100,000 square feet. It presently occupies 425,000 square feet there. Layoffs are also expected at Arco's Products division, which is located at Arco Center, 1055 W. Seventh St. in downtown.

Local commercial landlords and brokers have been monitoring Arco's moves closely, given the size and prestige of the company's tenancy in downtown Los Angeles.

Bob Caudill, managing director of Caudill & Co., downplayed the significance of Arco's downsizing. "It does not mean anything because it doesn't come as a surprise," said Caudill, adding that tenants routinely announce layoffs shortly before their leases expire. The first major Arco lease at Arco Plaza is set to expire in early 1996.

Another informed real estate source, who asked not to be named, differed greatl with the analysis given by Caudill. He pointed out that Arco is only one of several large tenants whose leases are scheduled to expire in the near future. "In 1998, the IBM space in Wells Fargo Center, all 575,000 square feet of it, comes on the market. Also in 1998, the MWD (Metropolitan Water District) leases expires."

Those two very large blocks of space, when combined with Arco's pending downsizing, could easily wipe out any gains made in the downtown vacancy rate between now and then.

The other main question raised in the wake of the Arco announcement is whether or not the oil giant will renew any of its space at Arco Plaza. "If (Arco officials) have made the decision to downsize, the question they will be lookin at is whether they should stay in Arco Plaza or move to another location downtown or move out of downtown completely. They have a lot of options," one veteran downtown broker said. Those options include restructuring its lease wit Arco Plaza's owner, Shuwa Investments Corp., moving to another site downtown or leaving town completely.

Real estate sources said Arco had discussed the possibility of restructuring it lease with its landlord, Shuwa Investments. Those negotiations were shelved, however, until the oil company announced the findings of its internal restructuring study.

Tenants with large space requirements, such as Arco, generally must start shopping for space long before their leases expire. However, Arco spokesman Al Greenstein said it is too early for the company to comment on its real estate plans as they pertain to office space in downtown Los Angeles.

Real estate sources said Arco would like to cut a sweetheart deal, similar to that recently struck by Taco Bell in Irvine, and could possibly do so. One downtown broker pointed out, "They have the same landlord."

Taco Bell's deal, as reported in the Los Angeles Times, included a substantial reduction in rent and $4 million in cash or rent credits for building improvements. Taco Bell was also given the right to end its lease at the end of five- and 10-year periods, and the landlord is not charging the company for its parking.

The similarities don't end at paying monthly rent checks to Shuwa Investments, however. Both Taco Bell and Arco reportedly were considered relocating their corporate headquarters to Plano, Texas. Also, John C. Cushman III of Cushman Realty Corp. represented Taco Bell in its negotiations with Shuwa. Cushman has also represented Arco in past negotiations.

Tom McDonald, a broker with national brokerage firm Cushman & Wakefield of California Inc., said Arco has had recent discussions with brokers about its real estate needs. But Arco had not yet announced the hiring of an outside real estate broker as of press time.

Some real estate sources said that Arco's downsizing would give the company les leverage in cutting a deal with Shuwa similar to the one Shuwa made with Taco Bell. "It is much easier to get what you want if you are going to take the same amount of space or more," as Taco Bell did, said one real estate broker, who asked not to be identified.

Several real estate sources said the downsizing may make it easier for Arco to relocate within the downtown market, if it decides to move out of Arco Plaza. Finding a chunk of office space the size of its present space, 425,000 square feet, would be difficult. However, one real estate source, who asked not to be identified, said Arco could end up seeking as little as 250,000 square feet of office space after its layoffs are complete. Arco already has 85,000 square fee of office space it is trying to sublease at 444 Flower St.