Leasing wars force some building owners to retreat from the battle.

The owners of at least one downtown Los Angeles building apparently have decided to drop out of the current leasing wars which find desperate landlords slashing rents and giving free space to lure tenants to empty buildings.

Meanwhile, the owners of a prime South Bay office tower, which has been virtually empty for two years have decided to drop their prices and try to lease it in the current market, even if it is a tenant's market.

Top downtown brokers have noticed that some downtown buildings have tightened leasing rates, but they doubt that taking office space off the market -- until the economy turns around -- is a good business strategy.

The owners of the Biltmore Tower at 500 S. Grand Ave. and the Biltmore Court at 520 S. Grand Ave. have turned down about half a dozen lease proposals, said Colgate Holmes, president of Biltmore Hotel Co., which owns the two buildings connected to the downtown hotel.

The 364,000-square-foot, two-building office complex is about 70 percent built-out, and of that finished space, almost 100 percent is occupied, Holmes said. But the owners have decided not to spend money installing carpet, drapes, lighting fixtures and other amenities in the remaining 30 percent of the space, unless they find the right deal, Holmes said.

In downtown Los Angeles, where about a quarter of the office space is either unoccupied or up for lease, building owners are cutting deals in which they won't see a profit for seven years or more, top commercial real estate brokers say. For the Biltmore, the right deal would be one in which the owners would begin to see a positive cash flow in two to three years, said Robert Slagel, vice president of finance for Biltmore Hotel Co.

"Some ownerships are desperate for immediate cash flow," Slagel said. However, the Biltmore does not have to service debt on the office structures, which were completed in 1987, he noted.

Slagel said he is aware that the buildings have the reputation in the downtown real estate community of being off the market. "One of the things we're trying to overcome is the image that we're not doing deals," he said. "That's not true. We're just trying to make deals that make economic sense."

But, said Stephen Walbridge, managing director and founder of the downtown Los Angeles office of commercial broker Julien J. Studley, Inc., for a landlord to write a tenant an above-market deal, "that's the same as telling you to go away."

Walbridge said he is also skeptical that a landlord in downtown would be able to write a deal that makes money in two to three years in the current market.

Aside from the Biltmore, Walbridge said he has noticed that a few of the big downtown buildings have "pulled back" a bit from writing aggressive lease deals. "But no one is taking space off the market," Walbridge said. "That would be suicidal."

Two California Plaza, a 52-story building currently under construction on Bunker Hill, recently "re-evaluated" its lease rates, in the wake of negotiations with the project's lender, Citicorp Real Estate Inc., said Nyal Leslie, president of Metropolitan Structures, Inc., the developer.

Some real estate brokers claimed the re-evaluation has meant Metropolitan has raised lease rates to the point where the building has been priced out of the market.

David Cushman, vice president of Cushman Realty Corp., said normally when a building opens the landlord will sign tenants at low rates to gain leasing momentum. As the building leases up, rates tighten. "The tenants who are going to do the best are the first one or two tenants," he said.

Cushman said he doesn't think the business strategy of keeping lease rates high would work, unless the building was hoarding huge chunks of space. If a building had five or more consecutive floors empty, it could compete in a narrow field for mega-tenants, Cushman said.

"I can't see how any landlord would not look at any particular deal," he said. "To close the doors and say we're not doing any deals would be ludicrous."

In the South Bay, owners of the 310,000-square-foot Union Bank Center at 5200 W. Century Blvd., are ready to cut deals after keeping the nearly empty building virtually off the market for more than two years, said Steve Weinberg, building leasing agent and a marketing agent for Matlow-Kennedy Corp.

Since Maxicare California moved out of the building about two years ago, some 270,000 square feet, or 87 percent of the building, has been empty, Weinberg said. The reason: The owners, The Hapsmith Co. and a pension fund of American Telephone & Telegraph Co., own the building outright and are not pressured to write aggressive deals to service debt, Weinberg said.

"What happened was on our first leasing round, they (the owners) decided they didn't care for the market economics," Weinberg said. "They just decided they didn't want to write deals in that market."

But in the past few months, the owners have come to realize the market is not going to turn around in the immediate future, Weinberg said. Matlow-Kennedy has advised the owners to drop monthly lease rates to $1.75 a square foot from a high of $1.95 and will begin a marketing campaign on the building in the next two months.

But the big change is not so much the leasing rates but the owners' attitude, Weinberg said.

"The thing is they're going to agree to the deals now," he said. "Before when they got to the ultimate moment, they said, 'No.' They recoiled from the deal. They said, 'Our building is worth more than that.'"