Displaced San Fernando Valley tenants scrambling: 20th Century among those searching for new quarters.

The San Fernando Valley commercial real estate market was rocked twice this month. First came the news that prominent west valley tenant 20th Century Industries had decided not to be the anchor tenant of the $100 million Warner Ridge complex in Woodland Hills.

A week later, the 6.6-magnitude Northridge earthquake damaged scores of office, retail, industrial, medical and residential buildings, leaving large and small business alike scrambling to secure temporary quarters -- not to mention the thousands of valley residents rendered temporarily homeless.

Among the biggest valley tenants reportedly seeking to relocate temporarily -- or perhaps permanently -- from its damaged digs in Warner Center was none other than 20th Century. The firm's decision to abandon Warner Ridge means the Spound Co.'s $100 million project, eight years in the planning, may never be built, and the valley may lose one of its largest employers.

Before the quake hit, L.A. Mayor Richard Riordan and Councilwoman Laura Chick had been busy trying to convince 20th Century not to relocate its 1,500 employees out of L.A. In the quake's wake, the prized tenant was shopping for at least a temporary local home, but hadn't announced any decision on the relocation matter as of press time.

Meanwhile, major valley retail properties were making news before and after the earthquake. In the wake of L.A. County's most disastrous 20th-century earthquake, the new owners of the big Northridge Fashion Center regional mall will begin a planned renovation earlier than expected. Hardly a month after MEPC American Properties acquired the property, which was the largest L.A. County real estate acquisition of 1993, the Jan. 17 quake tumbled two of the mall's anchor department stores' roofs and two parking buildings, and sent many smaller tenants scrambling to secure short-term shop space nearby.

Other San Fernando Valley malls -- while likewise picking up to varying degrees in the earthquake's wake -- are expanding, remodeling or repositioning in response to the recession and heightened competition from value-oriented retailers.

In particular, they are competing with a new movement toward "power centers," which contain two or more large value retailers, and "value malls," which contain factory outlet stores and department stores.

Examples of valley malls that are scrambling to remain competitive are numerous. In October 1993, Topanga Plaza held a grand opening to celebrate the completion of its $45 million renovation. Sherman Oaks Galleria completed its renovation in time for the Christmas season. And Laurel Plaza is scheduled to begin its renovation in 1994, while Fallbrook Mall -- which is losing its Sears anchor store -- is considering repositioning itself as a power center. Industry forecasts for 1994 predict that valley malls will begin to attract a greater number of value-oriented retailers to replace the smaller tenants and weak department stores that are disappearing from L.A.'s retail scene.

Value retailers, though, are having their own problems finding good strip center sites because little financing is available for new development, sources said. While scores of Ventura Boulevard retail properties suffered varying degrees of damage from the earthquake, one center that isn't hurting is the new Laurel Promenade at the corner of Ventura and Laurel Canyon boulevards. Tenants at that center include The Good Guys! and Super Crown Books. The center is 98 percent leased, with only one space of 900 square feet available. One of the Laurel Promenade's most recent deals, transacted in the early fourth quarter, involved Blockbuster Music Plus' lease of 10,000 square feet there. Not surprisingly, Laurel Promenade's success has given its property management firm, The ARBA Group, additional clout when it comes to negotiating leases. Scott Krieger, property manager of the center, said that ARBA provides minimal concessions and won't consider leases shorter than five years. Such conditions have been getting increasingly rare in recession-ravaged Southern California, where commercial landlords have had to continually sweeten lease rates and terms to retain tenants.

Meanwhile, developer Rick Caruso of Caruso Affiliated Holdings in Brentwood closed escrow in December 1993 on the infamous property at the corner of Ventura Boulevard and Hayvenhurst Avenue. Caruso plans to build a 93,250-square-foot community shopping center on that site.

The property had become a source of community outrage in recent years because it remained vacant and was transformed into a muddy swamp following heavy rains, prompting the derisive label "Lake Hayvenhurst."

That situation prompted the generally anti-development Encino community to offer strong support for developing the site. Caruso said that construction is scheduled to begin this April and is expected to be completed by the first quarter of 1995. As of earlier this month, the proposed retail center had already been 90 percent pre-leased by such creditworthy tenants as Ralph's Supermarkets, Barnes & Noble and Blockbuster Music, said Caruso.

"It's very unusual to be 90 percent leased before you close escrow," said Caruso. "It's also unusual to be building a new shopping center in the valley because it's expensive to have one level shopping-at-grade parking."

While developers have for years complained about the City of L.A.'s nightmarish approval process, Caruso said his project has been a delight so far. The city rushed through the permit process due to unusually strong community support. "The permit normally takes a year, and we had it within two months," said Caruso. "We have high compliments for the people at the city."

In the quake's wake, Caruso noted, his team is redesigning the center to withstand an 8-magnitude earthquake. "I'm just glad we weren't under construction" when the Northridge quake hit, he added.

Despite a few signs of strength from commercial landlords/developers, the valley continues to be dominated by tenant-driven deals, as is the case throughout much of California.

Brad Pearl, a vice president at commercial brokerage firm Zugsmith-Thind Inc., who represents In-and-Out Burger exclusively, as well as handling other fast food chains, cited the example of the Burger King franchise that purchased a vacant lot at the corner of Gloria Avenue and Ventura Boulevard. The franchise is now building a fast food outlet on the site, which is slated for completion in April.

"This is more common, vs. a developer buying and building on spec," said Pearl. "We're obviously still in the middle of a recession, but for the right location -- such as the corner of Hayvenhurst and Ventura -- it's still a competitive market."

Pearl also noted that the market drop in real estate is bringing in tenants that would not previously have been able to afford the rates, including fast food chains and car washes.

Concessions are way down, according to Pearl. But he acknowledged that they are available on a selective basis to the "right" tenant.

While he doesn't anticipate any permanent market alteration, the earthquake will likely lead to a sudden, short-term surge in Ventura Boulevard retail and office lease rates as tenants "scurry to find space," Pearl continued. While various businesses throughout the damaged areas seek short-term leases for temporary relocations, landlord will likely endeavor to sign them to long-term deals, he added.

According to commercial brokerage firm Julien J. Studley Inc., commercial leasing activity in the San Fernando Valley slowed during the November/December period, with a total of 381,642 square feet leased in all office buildings. This number represents a decrease of 29 percent from the 541,047 square feet leased during the previous two-month reporting period, but it is comparable to the 357,117 square feet leased in the November/December 1992 period. As for the entire year of 1993, a total of 2.98 million square feet of office space was leased in the San Fernando Valley, 4 percent less than the 3.12 million square feet leased in 1992, Studley reported.

The valley's overall office vacancy rate increased over the year and was 19.3 percent as of year end, compared with 17.6 percent at year-end 1992. The office vacancy rates in both the east and west San Fernando Valley submarkets increased slightly in 1993. Vacancy in the east valley submarket increased from 17.6 percent at year-end 1992 to 18.2 percent at year-end 1993. Vacancy in the west valley rose slightly from 18.9 percent at the end of 1992 to a year-end 1993 rate of 19.6 percent.

Some of the increase in office vacancy can be attributed to large blocks of space returned to the market by several companies relocating out of the state.

The average effective Class A office rental rate in the San Fernando Valley for the fourth quarter of 1993 was about $1.45 a square foot per month, reported Robert Bach, research director at commercial brokerage firm Grubb & Ellis Co. "Rent held steady in 1993 in San Fernando Valley Class A office buildings," Bach said. "But in Class B and C buildings, rent drifted down 5 to 10 percent from 1992."

Seth Dudley, corporate managing director of Studley, noted that while the valley "has definitely been sluggish in terms of overall absorption," he expects significant short-term relocation activity in the temblor's aftermath. Additionally, "there are a number of large deals we're expecting to happen in the first quarter of 1994," he added. Dudley said he is currently in negotiations with Sterling Software Inc. and Allianz Insurance Co. Even though office vacancy rates rose in both the east and west valley submarkets during 1993, Nancy Stark, vice president of CB Commercial Real Estate Group Inc., said she is continuing to see a migration of office tenants from the Westside, downtown L.A. and Mid-Wilshire into the valley. And she expects this to continue once quake damage gets repaired and businesses get resettled. "For the short-term, we're seeing inordinate amounts of tenants scrambling as they look for temporary and/or permanent space. Many need to be operational somewhere, so there will be a considerable amount of 'real' requirements," she related. "But it's still too early for most tenants to know the extent of damage their buildings have suffered."

"Landlords immediately began investigating damage, but not that many (affected) businesses were immediately able to determine whether they'll be making long- or short-term relocation deals. They still need to review (damage-related) clauses in their leases, as well as their earthquake and business-disruption insurance policies," Stark added.

One of the biggest L.A. commercial property purchases of 1993 occurred in November when Blue Cross of California's Woodland Hills headquarters was quietly purchased. The primary partners in the purchasing partnership are said to be Westwood-based developer Abraham I. "Avi" Lerner and New York investor Leon Black, both of whom had strong ties to former investment house Drexel Burnham Lambert Inc.