Tough times hang around for developers, owners.

Upbeat scenes are few in the 1992 real estate picture

After staggering through what was arguably the toughest year ever for L.A. commercial real estate interests, industry professionals were wishfully anticipating better news in 1992. Unfortunately, as the year progressed, a dark shadow seemed to overhang every encouraging development.

While the riot scenes hardly conjure up any positive images, local real estate interests had to be somewhat relieved that L.A.'s primary commercial markets emerged relatively unscathed in the tumult.

However, more than 1,000 properties in the city, and dozens in other municipalities, were damaged or destroyed.

And the unrest -- along with congestion, cost and "quality of life" factors -- continued to drive jobs out of the county. The trend doesn't exactly describe a market ripe for filling empty commercial property space.

While the industrial, retail and residential components boasted few silver linings among their own black clouds, it was L.A.'s high-profile office market that most visibly defined 1992's good news/bad news scenario.

Leasing figures are a case in point. While aggregate office leasing activity in the county through October had outpaced the 1991 year-to-date figure by nearly 25 percent, the growth in occupied space (or "net absorption") was down 25 percent from the year-earlier comparable.

Office rental rate trends are another example. The latest deals seem to indicate that "effective" rents are just starting to firm. For most of the year, however, "couldn't refuse" deals generated much of the demand as effective rents continued to slide within most of the major office markets.

Unfortunately, 1992 saw little positive movement on the property value front as buyers and their financiers remained ultra-cautious despite favorable pricing levels. Under pressure from falling rents -- along with all the foreclosed properties that lenders and public clearing houses "dumped" on the market -- values necessarily went along for the downward ride.

The good news/bad news script seemed to taint nearly all of 1992's highest profile transactions.

While landlord and tenant inked one of the biggest deals in a decade -- Unocal's 450,000-square-foot anchor commitment to Central City West's planned Los Angeles Center mega-development -- ground remains unbroken amid cautious capital markets and another anti-development lawsuit.

Likewise, the San Fernando Valley's biggest 1992 commitment -- 20th Century Insurance Group's letter of intent to fill Warner Ridge's first 400,000-square-foot phase -- remains a shallow victory for user and developer alike. Project approval, and consequently construction financing, also remain tied up in a suit inspired by local homeowners.

Union Bank's $65 million, 10-year renewal for 300,000 square feet at its downtown L.A. headquarters made owners Equitable Real Estate and Nippon Life smile. But the deal apparently delays the bank's plans to develop a Figueroa Corridor home of its own for at least a decade. However, landlords likely see this as a blessing for the market in which the sub-$22-a-square-foot deal was struck.

And the California Plaza team finally signed a second major tenant for its phase-two highrise and consequently leads the pack vying for Metropolitan Water District's permanent home. However, MWD settled on a short-term, downsized lease at Cal Plaza only after a 207,000-square-foot deal fell through when the WCT building's creditors foreclosed and MWD shifted its sights.

A few more examples: L.A. Gear's $20 million deal with Santa Monica Business Park means JH Snyder Co. still has no anchor for its proposed Marina Del Rey complex. ICM's 78,000-square-foot Beverly Hills lease closes the story on Columbia Savings' would-have-been headquarters.

Major relocations by the likes of the Screen Actors Guild to Museum Square (82,000 square feet) and insurance giant AIG to the 1992-vintage 777 Tower (104,070 square feet) may be fine for Miracle Mile and downtown, but they also highlight the devastating exodus from Hollywood and Mid-Wilshire. And the new HealthNet sign atop one of Voit Cos.' Warner Center Plaza highrises is definitely a sign of the times. Bob Voit had sworn he wouldn't offer signage there, but he wasn't about to lose his biggest tenant -- not with his 600,000-square-footer next door still sitting empty.

If there's an outstanding exception to the bad-with-good profile, however, it seems to be MGM's 200,000-square-foot move from Culver City's Filmland Corporate Center to Santa Monica's former Colorado Place -- followed by Sony Pictures' expansion into MGM's digs. Sony's landlords in the healthy Burbank/Media District submarket notwithstanding, this dual-deal appears to be a win-win for all involved.

As capital markets and rental rates retreated even further in 1992, foreclosures, "deedbacks" and bankruptcies grabbed more than their share of headlines. Regulatory pressure continued, inducing lenders to clamp down on problem assets, inspiring fears about "real estate owned" properties being "dumped" on already staggering markets.

Confirming the local commercial real estate industry's worst fears, IDM Corp. declared Chapter 11 bankruptcy in July, along with 18 of its 91 affiliated partnerships and six other related entities. As most of the debt and equity is tied up in Southland properties, it's hard to find a silver lining here -- other than the relatively strong occupancy at IDM/Kajima's World Trade Center in Long Beach.

Besides the WTC foreclosure, notable downtown defaults included Equitable's foreclosure on Raffi Cohen's Figueroa Plaza and the site on which Cohen and Melvin Simon had been planning the RCI Tower.

Among dozens of Westside foreclosures and deedbacks in the news in 1992 was the November auction of the unfinished Santa Monica Beach Hotel. For $18.75 million, the Slatkin brothers picked up a project that had managed to rack up nearly $100 million in debt obligations.

The San Fernando Valley saw the Warner Center Apartments saga continue, as the syndicated partnership couldn't meet the 1,279-unit project's monthly mortgage payments. A Trammell Crow Co. partnership also deeded back the nearby Warner Gateway office project to lender Bank of America -- which is having trouble selling the property at half its peak value. Further west, reputedly sound developer Cal Johnson also surprised his colleagues by giving back half his Malibu Canyon Business Park to his lender.

And the market seemed to teeter further as the year progressed. In October, creditors foreclosed upon a record $452.6 million worth of Los Angeles County properties. This figure was up 106.1 percent from a year earlier and 39.6 percent from September.

Under these circumstances, it's easy to comprehend why office construction under way countywide totaled less than 1 million square feet -- for first time in a generation -- after 801 Tower opened downtown this summer. Capital suppliers crunched the market even further in 1992, as local construction lending fell from $8.3 billion during the 1989 peak all the way to a projected $1.2 billion this year.

The virtual absence of major development activity is inherently improving the "overbuilt" status of L.A.'s commercial real estate market. Along with more speculative developments, however, the supply/demand imbalance and "credit crunch" has also halted -- temporarily at least -- certain planned projects that might fulfill some significant commercial and/or community needs.

A tired Tinsel Town would almost certainly have benefited from Melvin Simon's ambitious -- but abandoned -- Hollywood Promenade. And Burbank's remarkably tight "Class A" office market is crying for the likes of Cushman Investment & Development's NBC Plaza, a project still in search of financing.

And if the Hillman/Smith & Hricik team developing Los Angeles Center wasn't able to secure financing for the Unocal-anchored first phase -- after searching throughout the year -- it came as no great surprise that neither Watt City Center nor the just-approved Metropolis project has announced a groundbreaking date.

However, a handful of big commercial development projects were proposed in 1992. Catellus Development, Ratkovich Co./Villanueva Partners and Forest City are all proceeding with major developments in partnership with public transit authorities. Woff Senson Buttery White is making progress on a 680,000-square-foot center adjacent to Burbank airport, and Hollywood Park announced plans for a $100 million expansion.

Developers also proposed two big Koreatown projects -- and continued moving forward with them even after the riots. These include the 570,000-square-foot Pacific Trade Center mixed-use development and the 231-room Garden Plaza Hotel. Another significant event on 1992's development front: the 1,000-plus-acre Playa Vista community's draft environmental review was released.

Capital markets weren't underwriting new L.A. developments in 1992, nor were they exactly bullish on investments into existing business properties here. Through October, lending for acquisitions of commercial projects was down by another third -- to $1.2 billion from $1.8 billion -- from the same period in anemic 1991.

So even though asking prices frequently approached 50 percent discounts from peak values, and more commercial space was on the market than at any time in recent memory, sales activity was off 50 percent or more in most submarkets.

There was some better news on the retail development front -- even though rioting destroyed hundreds of L.A. retail properties and helped push South Central rents toward the $1-a-square-foot mark.

The Valencia Town Center regional mall debuted during the third quarter, the "discounter oriented" Torrance Crossroads in November. Carson Mall and Topanga Plaza reopened this year after multimillion-dollar makeovers. An expansion/renovation was also proposed for Laurel Plaza, and Vestar Development actually broke ground this year on its Cerritos Towne Center.

The L.A. Metromall development team signed several anchors and hopes to get construction under way early next year. And the Ahmanson/Kilroy team is re-grading its 67-acre Calabasas site to emphasize retail over office.

The retail sector even captured one of the year's biggest property investments: CalPERS' acquisition of a 50 percent interest in Galleria at South Bay.

The good news on the industrial end is that L.A. remained the nation's No. 1 manufacturing county in 1992. The bad news is that it also has a huge supply of vacant industrial space, manufacturing employment is off 20 percent over three years and even its stronger markets saw effective rents drop 30 percent or more during the year.

And on the residential end, buyers had to be encouraged that 1992's ever-downward movements in both housing prices and interest rates made L.A. homes more affordable than they've been in a decade. Unfortunately, demand is so weak, sales activity through November was down 16 percent from the depressing 1991 comparable.