Commercial real estate loan volume drops by 22%: lenders still backing away from overbuilt L.A. market.

The volume of large real estate loans -- those of $2 million or more -- in L.A. County declined by more than $1 billion, or 22 percent, in 1993 compared with the prior year, according to a survey done by Dataquick Information Services Inc.

In 1993, L.A. County's 25 largest commercial real estate lenders made a total of 755 loans of $2 million or more on Los Angeles County real estate for a total amount of $3.642 billion, reported Dataquick, a La Jolla-based real estate information service.

That compares with 937 such loans totaling $4.668 billion in 1992, according to Dataquick.

Loans of $2 million or more are typically commercial, industrial, or multi-family residential real estate loans, or refinance loans for those types of properties, said John Karevoll, Dataquick's financial editor.

That decline in commercial real estate lending in severely overbuilt L.A. County has been going on for several years now, and will likely continue through at least 1995, reported Adrian Sanchez, regional economist with downtown Los Angeles-based First Interstate Bancorp.

"What the earthquake may have done is taken some of that excess supply (of commercial space) off the market due to buildings being destroyed beyond repair; that's another way of absorbing space," Sanchez said. "But that earthquake damage was not extensive enough to have a significant impact on the excessive amount of L.A. commercial space. We anticipate additional declines in commercial real estate lending volume for L.A. County of about 10 percent per year for the next two years."

Karevoll of Dataquick added: "Things are at a low ebb when it comes to the high-end lending market. I know of some banks that are completely backing out of the (large real estate loan) market."

Jonathan Neuberger, an economist with the Federal Reserve Bank in San Francisco, said a decline of 22 percent in big-ticket real estate lending in L.A. County is "striking," but "given the poor condition of the (L.A.) economy the last couple of years, it should not be surprising."

Neuberger noted that real estate lending is a lagging economic indicator and any increase in lending will follow an economic upturn. An uptick in real estate lending could occur "in the next year or two," Neuberger said.

Karevoll noted that one reason for the decline is that these loans are considered riskier than loans for moderately-priced single family homes.

Another factor driving down the volume of big real estate loans is that lenders "are not making the high loan-to-value that they used to," Karevoll said. "Ten years ago, if you had a property worth $10 million, the banks would lend $7 million. Now they won't do it. They will lend you maybe 40 to 50 percent of value."

Karevoll and some of the top issuers of big real estate loans said that much of the 1993 lending involved refinancing of existing loans.

Bucking the overall trend of scaling back commercial real estate lending in L.A. County was John Hancock Financial Services Inc., which issued far more $2 million-plus real estate loans than any other institution. John Hancock's $163.6 million in such loans issued during 1993 was nearly triple its volume of such loans in 1992.

However, John Hancock was the exception rather than the rule.

Glendale Federal Bank, which ranks as the 13th biggest lender of $2 million-plus loans in 1993, making 14 loans for $42.4 million, has had a policy against making new commercial real estate loans since 1990, said Judy Cunningham, Glendale Federal spokeswoman.

"Those loans were primarily made to finance the disposition of REO (foreclosed real estate owned by Glendale Federal), or to refinance existing, maturing loans where the borrower has been unable to find alternative financing," Cunningham said.

A number of the top issuers of large loans in 1993 cut back on lending from 1992 levels, according to Dataquick. Bank of America and Wells Fargo Bank, both based in San Francisco, and Irwindale-based Home Savings of America all cut back on making $2 million-plus real estate loans in 1993, vs. 1992, according to Dataquick.

Some banks which were on the list of top lenders for 1992 did not even appear on the list of top big-ticket lenders for 1993.

Beverly Hills-based City National Bank was a big commercial lender in 1992, according to Dataquick, making 16 loans of $2 million or more in 1992 for a total sum of $70.9 million. City National was ranked ninth on the 1992 list of big-ticket real estate lenders.

But for 1993, City National did not qualify for the list of the top 25 big-ticket real estate lenders, according to Dataquick.

"City National Bank, like others in the banking and thrift industries, curtailed its real estate lending during the past year in response to poor economic conditions, particularly in Southern California," City National senior vice president Stan Kafka said in a statement issued to the Business Journal. "While we are still an active lender with a growing backlog of quality business, our customers' activities are increasingly beyond the borders of Los Angeles County," Kafka said.

Another Westside bank which made the 1992 list of top 25 big-ticket real estate lenders, but did not make the 1993 list is Westwood-based Metrobank. In 1992, Metrobank made nine L.A. County real estate loans of $2 million or more, for a total sum of $37 million, according to Dataquick.

Metrobank Chairman and Chief Executive Officer David Buell said Metrobank made about the same volume of $2 million-plus real estate loans in 1993 as it did in 1992 -- about $35 million to $40 million worth. But in 1993, only about $10 million worth of those loans were made in Los Angeles County. TABULAR DATA OMITTED