Mid-Wilshire exodus continues as vacancies jump; Miracle Mile stays flat, slightly softer than a year ago.

Commercial landlords along the Mid-Wilshire corridor still have plenty to complain about. Large tenants continue to vacate the area. Metro Rail construction continues to derail business. Rental rates are too low to cover the mortgage payments at some buildings, forcing landlords to turn keys over to lenders.

Down the boulevard in the Miracle Mile district, landlords are a bit more upbeat as Wilshire Courtyard prepares to ink another big Hollywood tenant, Motown Records, in the next few weeks. Motown is reported to be in negotiations to take 30,000 to 50,000 square feet of office space that has been vacated by Provident Life Insurance Co., whose lease recently expired.

That possible move further signals to the real estate community that Miracle Mile is still considered a destination for entertainment companies quitting Hollywood.

Still, there has not been enough Hollywood-to-Miracle Mile movement for the latter area to record positive absorption rates. During the first quarter of 1994, Miracle Mile recorded negative net absorption of 10,000 square feet. That means 10,000 more square feet of office space was vacated than moved into. The vacancy rate in the Miracle Mile district remains at 24.2 percent, nearly 2 percent higher than a year ago.

"There are still tenants in Hollywood that are looking at Miracle Mile. And leases continue to roll over in Hollywood," said Cliff Goldstein, marketing director of Miracle Mile-based real estate development company J.H. Snyder Co. "I don't think that trend has abated at all."

Goldstein said tenants hoping to move to L.A.'s Westside are looking much more closely at the Miracle Mile market, which has historically been treated as an appendage to Mid-Wilshire. "Any tenant who is looking at the Westside now is looking at Miracle Mile as well," he said. The fact that rental rates east of San Vicente Boulevard are lower than in Beverly Hills, Santa Monica and Westwood may make the area even more attractive to tenants looking to relocate from other areas.

According to information from real estate brokerage Grubb & Ellis Co., office rental rates in the Miracle Mile district are holding steady at between $1.20 and $2.35 per square foot per month. On the Westside, only Culver City and Hollywood provide lower rental rates than Miracle Mile.

Rental rates are even lower in Mid-Wilshire, but that does not seem to be giving the area an immediate boost. It experienced negative net absorption to the tune of 142,130 square feet during the first quarter. That pushed the office vacancy rate in the Mid-Wilshire district to 28 percent at the end of the quarter, up from 25.5 percent at year-end 1993.

Real estate sources said there is simply too much upheaval in the area now for rental rates to attract many tenants, despite the fact that rates are lower in Mid-Wilshire than in nearly any other part of Los Angeles. Rates there range between 99 cents and $2 per square foot per month.

Still, "tenants continue to pack their bags and take advantage of opportunities elsewhere," said Brad Feld, a broker with commercial brokerage firm Cushman & Wakefield of California Inc.

Real estate bargains elsewhere throughout L.A. County are not the only thing prompting movement out of Mid-Wilshire. The largest tenant in the corridor, Thrifty Cos., is expected to move its headquarters out of Los Angeles completely - to Oregon. When that takes place, the drug store chain operator is likely to leave its building at 3424 Wilshire Blvd.

Unless that building is occupied by a new owner or tenant by the time Thrifty packs its bags, a big chunk of the 160,000 square feet of office space will flood the Mid-Wilshire market.

According to some real estate sources, the key to turnaround in the Mid-Wilshire market seems to be getting the Metro Rail construction finished. But that will not happen for some time.

"I think that when the Metro Rail is completed that some opportunities will be created for governmental or for back-office use in the area," said Tom Apodaca, a broker with CB Commercial Real Estate Group Inc. "The improved transportation link with downtown (L.A.) will be a big help."

Unfortunately for Mid-Wilshire landlords and tenants, construction on Metro Rail does not go underground until the end of the year, and streetscaping cannot commence until then. According to Streetscape Committee Chairman Andy Miliotis, ground breaking on the project is not expected until year end or early 1995.

Still, some skeptics question whether Metro Rail and the streetscape will be enough to turn Mid-Wilshire around. "Mid-Wilshire is not going to turn around for a long time," said Philip Sample, a broker with Grubb & Ellis Co.

The fate of the Ambassador Hotel must be clarified, added Sample. "Something needs to be done with that site."

The Ambassador's future is not likely to be determined in the near future, however. Trump-Wilshire Associates recently filed a $100 million lawsuit against the Los Angeles Unified School District after the district withdrew its bid to buy the Ambassador site. Attorneys for Trump-Wilshire Associates have said no plans for the site will be made until the case is settled.

Adding to uncertainty in the Mid-Wilshire market is the fact that many buildings are up for sale, said sample. "Almost every building on the boulevard from Western to Vermont is for sale," he said.

Right now, explained Sample, landlords are dumping buildings for virtually nothing. Even with tenants occupying space, landlords are barely breaking even because rental rates are so low. Many have chosen just to cut their losses and get out of Mid-Wilshire.

"When those buildings get sold, the (new) owners may be more motivated to fix them up and lease them out," said Sample.

Meanwhile, though, leasing activity in the area has been limited to small companies taking less than 5,000 square feet.

One Park Plaza, located at 3250 Wilshire Blvd., has leased an additional 35,000 square feet of its 400,000 square feet or office space since last summer, bringing that building's vacancy rate down to 11 percent, according to Franck Morineau, leasing manager at One Park Plaza. The average size of those deals, however, has been about 2,000 square feet.

Brokers in the area said owners must adjust to leasing to small tenants as they are expected to provide the bulk of the leasing activity in the Mid-Wilshire market in coming months. Mid-Wilshire owners have to concentrate on "getting through the next two years," said Sample.

On the positive side, R.H. Macy & Co.'s sale of the leasehold on the landmark Bullock's Wilshire building to Southwestern School of Law was approved by the bankruptcy court.