County's 4th-largest brokerage hits financial skids: RE/MAX Beach Cities files for Chapter 11 protection.

While much of the rest of the country is celebrating the recent upturn in home sales, several local residential real estate sources remain gloomy, even more so following this month's earth shaking.

One significant indication that recovery remains elusive for L.A. residential real estate is the recent Chapter 11 bankruptcy filing of one of the largest residential real estate brokers in Los Angeles County, Manhattan Beach-based RE/MAX Beach Cities Realty.

In 1993, that firm appeared in the No. 4 spot on the Los Angeles Business Journal's List of the top residential real estate brokers in Los Angeles County. It operates five offices in the L.A. area -- in Marina del Rey, Westchester, El Segundo, Manhattan Beach and Torrance -- and employs 275 brokers.

The main problem for RE/MAX Beach Cities, according to its owner, Robert Todd, has been the cost of the company's overhead. It negotiated the leases on its offices back in the 1980s and the terms are "totally out of line with the economy of today."

Todd said he will be terminating the lease on his firm's Torrance office and relocating that operation to a new facility in the same area. That move alone would save the firm $25,000 per month, said Todd.

He denied that the bankruptcy filing had as much to do with declining sales revenues as it did with keeping up with overhead costs. Nevertheless, it is clear that there has been a downturn in revenues. RE/MAX Beach Cities' sales peaked, according to Todd, in 1989 at $815 million. Last year sales were down to $545.6 million, a decline of 33 percent over four years.

Other local residential real estate brokers, however, claimed that the continued recession in Los Angeles, and more specifically in the South Bay, is likely to have had an impact on RE/MAX Beach Cities and was a likely contributor to its bankruptcy.

"Business is off in the South Bay as in other parts of Southern California," said Tom Johnston, president of Hermosa Beach-based residential real estate brokerage Realty Executives. In recent years, he said, several residential real estate brokerages in the South Bay have shut their doors.

Arnold Goldstein, president of Manhattan Beach-based Shorewood Realtors Inc., conceded that declining prices for homes in the South Bay has had an impact on revenues.

"Prices are soft," he said. "But people are accepting lesser amounts for their homes."

Nevertheless, Goldstein seemed optimistic. Sales revenues at Shorewood picked up in 1993 vs. 1992, Goldstein said, adding that he hopes revenues will increase further in 1994. RE/MAX Beach Cities' problems, Goldstein said, are "more internal than having to do with the market itself."

Indeed, Todd conceded that his firm did project business growth far in excess of what the market would allow. Back in 1989, just before the market downturn, Todd was predicting growth. The reorganization plan, he said, reflects the downturn in the local real estate market.

Todd stated that L.A.'s recent earthquake in no way changes his plans to reorganize his company. He expects that RE/MAX Beach Cities will emerge from bankruptcy in six months.

Although lower interest rates are promoting sales, several residential real estate brokers stated that the decline in value of homes will continue to hurt sales revenues despite increased activity. And that decline in values may be at least temporarily exacerbated by the recent quake.

Others were surprised that such a large firm as RE/MAX Beach Cities had filed for Chapter 11. Jon Douglas, president of Beverly Hills-based residential brokerage firm Jon Douglas Co., said, "It is always surprising when a guy who looks like he is doing well files for Chapter 11."

Douglas is one of the creditors listed in RE/MAX Beach Cities' bankruptcy filing. In 1991, Douglas closed its office in Manhattan Beach and sublet the space to RE/MAX Beach Cities. Douglas said one reason his firm decided to sublet to RE/MAX Beach Cities was that he thought RE/MAX Beach Cities was in fairly good shape.

"He had too much overhead and got overextended," said Douglas. "We all suffer from overhead costs when the market slumps."

Douglas pointed out that times were particularly hard in the South Bay because many residents there were involved in the defense industry, and have been laid off.