Sales of apartment buildings plummet after quake; statistics contradict brokers' claims that sales are rising.

Local real estate brokers, renowned for their perpetually sunny outlook, insist they see the clouds clearing over the Los Angeles area real estate market. More specifically, they are saying apartment sales are on the rise in Los Angeles County.

Perhaps ironically, at least one broker attributed the January earthquake with helping to stimulate apartment building sales and occupancy rates.

A first-quarter statistical report, however, contradicts such assertions. A statistical summary prepared for the Business Journal by Riverside-based TRW-REDI Property Data found that "the number of (apartment buildings) ranging from $500,000 and up sold during the first quarter of 1994 is 53 percent lower than the number sold in the fourth quarter of 1993, and 27 percent lower than the number sold in the first quarter of 1993."

"We can only go by closed escrow transaction," said Nima Nattagh, the market analyst from TRW-REDI who prepared the report. "It remains to be seen if what the brokers say is true or not true in the second quarter....The earthquake had a dampening effect on transactions. The lenders would like to reinspect their properties for damages... We've had a situation where we've been hit particularly hard by foreclosures, which tend to drag down prices and is not a good investment proposition."

Nattagh's figures showed that apartment building sales in Van Nuys, Hollywood and Glendale were sharply down and, conversely, in Redondo Beach and Beverly Hills, apartment building sales increased.

"The (San Fernando) Valley region sales are down," said Nattagh. "That could have something to do with the earthquake. There has been a shift of purchase activity in favor of areas that offer safer investment opportunities."

Nattagh further said that "even though the (apartment) vacancy rates have gone down, it doesn't necessarily mean that the number of (apartment building) purchases have gone up."

Mike Zugsmith, chairman of Zugsmith-Thind Commercial Real Estate Services, a commercial brokerage firm headquartered in Studio City, said Nattagh's findings are misleading.

"Although what you have obtained is very accurate, it also is skewed," said Zugsmith. "Because of the earthquake, deals scheduled to close during the first quarter were delayed. Many buyers wanted to verify earthquake damage and determine who pays for the damage and how. As a result, everything just slowed down."

"I believe it (apartment sales activity) has picked up. We have a significant volume of properties in escrow...My sense is that the marketplace is continuing to expand, as it has over the past year and a half. There are wonderful bargains out there, and prices we haven't seen for 15 years. There's a good supply of products out there...It is a vibrant market and it is continuing to expand."

Although Katherine Burgh, a senior marketing consultant in the Investment Properties Division at commercial brokerage firm Grubb & Ellis Co., agreed with Zugsmith, she didn't give total credit to the earthquake.

"Due to the earthquake, our vacancies have gone down," said Burgh. "Some buildings are red-tagged or shut down, and people have had to move into other buildings. Also, some buyers are looking for damages buildings to buy and fix up. A lot of the buyers that typically buy buildings did not have earthquake insurance...They're putting things on hold, but they're not canceling...I don't think the earthquake in general is what is causing the market to pick up," Burgh said.

"I think the economy is picking up," she added. "I see a lot of private parties putting their homes on the market, (homes) people owned for a long time. The other thing that I'm seeing is a lot more activity - phone calls and information about buying."

Lawrence Rouse, a vice president in the apartment division at Zugsmith-Thind, said "lenders are still foreclosing on a high rate" and "taking their holdings off the market temporarily."

Rouse said that since the beginning of this year, a lot of lenders have been trying to sell their foreclosed apartment buildings in bulk. According to Rouse, lenders are now canceling their apartment-building listings, preventing real estate agents from accessing information on the properties. Instead, he said, lenders are selling their apartment buildings in bulk portfolios to investment trusts and insurance companies, which turn around and sells the buildings individually for a profit.

Despite the brokers' assertions of an improving economy and increasing sales, the TRW-REDI report showed some additional facts that suggest the market may not be firming.

Seventy percent of all apartment buildings sold during the first quarter of 1994 were sold for less than $1 million - that percentage was unchanged from the first quarter of 1993.

As for a average per-unit prices, the figures show that there was an increase of 11 percent between the last quarter of 1993 and the first quarter of this year (from $61,448 in fourth quarter 1993 to $68,250 in first quarter 1994). Although this increase corresponds with recent price improvements seen in other markets around the country, it could also reflect a shift of purchase activity in favor of better-quality, Class A apartments, according to the summary.

The summary further showed that, of the 40 L.A. County apartment building sales made between October 1993 and March 1994, 21 sold for less than they had been purchased for.