Quake recovery efforts dominate quarterly action.

Scant leasing, burgeoning investment activity and further earthquake-related uncertainty characterized the Los Angeles County commercial real estate market' second quarter of 1994.

Continued fallout from the Jan. 17 earthquake unquestionably remained a primary topic of discussion within the commercial real estate community during the quarter -- especially in the San Fernando Valley.

As big Woodland Hills-based insurer 20th Century Industries' earthquake claims mounted this spring, one of the past decade's biggest lease transactions was pu on indefinite hold. And 20th Century's prospective new headquarters -- Warner Center Plaza III, Southern California's biggest empty office building -- retain its "see-through" status as the 20th Century team rethinks the insurer's long-term space strategy.

Ominous findings of steel-frame structure tests conducted at University of Texa this spring are also sending shivers through the commercial market in the valle and L.A.'s Westside. The discovery that engineers had made overly optimistic conclusions about the strength of joints linking steel-frame beams and columns is likely to inspire re-inspection requirements, as well as construction code revisions.

Follow-up tests at two modern four-story steel-frame office buildings -- one in the valley's Sherman Oaks district and the other in the Westside's Brentwood community -- led to the "yellow-tagging" of properties that were green-tagged i the quake's immediate aftermath. The commercial property community is now bracing for further tenant displacements -- and potential repair bills -- as hundreds TABULAR DATA OMITTED of steel-frame buildings become subjects of mandatory re-inspections.

Veteran valley broker Jeffrey Woolf, a partner in the Lee & Associates Sherman Oaks office -- which commenced operations during the quarter -- said owners wit space available in modern "Class A" facilities should benefit from seismic safety concerns. "Surety of tenancy" will become a buzz-word as tenants migrate to the buildings least likely to experience problems in subsequent quakes, Wool continued.

He expects more foreclosure activity because owners of so many earthquake-damaged properties are already strapped by the recession-related oversupply of commercial space -- and few lenders are offering repair/releasing funds. But on a more positive note, many earthquake-displaced tenants that signed short-term leases at undamaged buildings are likely to follow up with five- and 10-year deals because "they don't want to move again," Woolf predicted.

In terms of countywide leasing activity, second-quarter statistics from brokerage Grubb & Ellis Co. paint a generally bleak picture offering little indication that L.A. is participating in the national economic recovery. However, the Grubb & Ellis report covers leases during the quarter when tenants actually take occupancy of leased space. So deals signed in the second quarter in which tenants have not yet physically moved are not reflected in the Grubb & Ellis numbers.

CB Commercial Real Estate Group Inc., which records activity as soon as parties sign leases, offers a brighter picture of the market's general direction during the second quarter.

Grubb & Ellis reported a net loss of about 375,000 square feet of overall occupancy during the quarter in the county's 154 million square feet of office properties. In other words, tenants occupied that much less space at the end of the quarter than at the beginning. In real estate jargon, the county market suffered 375,000 square feet of "negative net absorption."

Grubb & Ellis stats indicated that the downtown L.A. office market posted a negative net absorption of about 223,000 square feet during the quarter, while the Mid-Wilshire area and the greater Westside suffered negative net absorption of about 175,000 and 78,000 square feet, respectively.

One positive sign was that the long-struggling greater South Bay office market recorded positive net absorption of more than 185,000 square feet during the quarter, according to Grubb & Ellis.

CB's second-quarter numbers, which include deals that Grubb & Ellis will presumably record in future quarters, are much more encouraging. The downtown L.A.-based brokerage reports net absorption of more than 1.22 million square feet in the approximately 151 million square feet of L.A. County office properties its research staff tracks.

The CB report's highlights include more than 600,000 square feet of positive ne absorption in the Westside's 34.7 million square feet of office space. The Westside's Century City submarket led the way, with nearly 175,000 square feet of positive net absorption. Santa Monica continued to tighten down to an 8.5 percent vacancy rate with another 135,000 square feet of positive absorption.

CB pegged the 17.8 million-square-foot San Fernando Valley office market's net absorption at just under 434,000 square feet, while the 31.2 million-square-foo downtown L.A. market had net absorption of 257,000 square feet during the secon quarter.

On the negative side, CB's report indicated that L.A. County's most troubled office markets and submarkets continued to suffer during the quarter. The 13.7 million-square-foot Mid-Wilshire office submarket suffered a net occupancy loss of 395,000 square feet. The other major loser was the 29.6 million-square-foot South Bay market, which recorded about 160,000 square feet of negative net absorption.

While much-anticipated leases involving the likes of 20th Century, Times Mirror Co., UniHealth America, Motown Records, Hertz Corp. and others remained under negotiation at the Independence Day break, some important deals did close durin the quarter.

Downtown L.A. saw the 801 Tower team follow up its 50,000-square-foot Sedgwick Detert Moran & Arnold law firm lease with a 42,000-square-foot deal bringing Jardine Insurance Brokers Los Angeles Inc. over from its Westside digs. Also downtown, U.S. Trust of California renewed its commitment to Arco Plaza with a 47,600-square-foot lease.

Other than those, "there weren't a lot of highlights" in the Central Business District during the second quarter, lamented Steve Bay, corporate vice presiden with brokerage Julien J. Studley Inc.'s downtown office. But he's encouraged that several major "tire kickers" not currently housed in "core" office highrises are shopping the market.

Bay's Westside Studley colleagues helped close the quarter's biggest office lease transaction, the "rehabilitated" Aurora National Life Assurance Co.'s dea for 141,000 square feet at the MGM Plaza office complex in Santa Monica. Also, managing agent Hines Interests Limited Partnership consolidated Philips Interactive Media of America into 83,000 square feet at Westwood's 10960 Wilshire Blvd. highrise, and renewed BBDO Worldwide Inc.'s commitment to 60,000 square feet at that tower.

The Westside -- and the city of Beverly Hills in particular -- also saw much of the significant office property investment transactions during the second quarter.

Guess? Inc. founder Georges Marciano purchased the Beverly Wilshire Center complex in Beverly Hills for more than $27 million. Also in Beverly Hills, publisher Larry Flynt bought the former Great Western Bank headquarters at Wilshire and La Cienega boulevards, reportedly for about $18 million. The Bloomingdale's department store chain is also said to have opened escrow on a future store site in Beverly Hills.

The downtown Glendale office submarket also saw significant leasing activity during the quarter. Times Mirror and Warner Brothers Inc. are also said to be seeking large blocks of space in and around Glendale.

With the Burbank and Universal City submarket's already turning tenants away, available Glendale space should continue to see lots of activity, noted Todd Doney, a vice president at brokerage Cushman Realty Corp.

"I'm expecting to see single-digit vacancy in Glendale as well by the end of th year," he predicted.