Volume of large L.A. commercial real estate loans plummets 50%.

The volume of loans issued for major commercial real estate purchases in Los Angeles County during a recent 12-month period was only about half the volume of such loans during the like year-ago period, and a number of Japanese-owned California banks appear to have ceased making large L.A. commercial real estate loans, according to a study by TRW-REDI Property Services.

For the period March 1992 through February 1993, lenders made $660.8 million in loans for commercial real estate purchases of $2 million or more in Los Angeles County, according to the survey by TRW-REDI, a Riverside-based real estate information company.

For the like 12-month period a year earlier, banks made $1.2 billion worth of the same type of loans.

The numbers "are certainly an indication that things are slow," said Gary Zimmerman, an economist with the Federal Reserve Bank in San Francisco who tracks real estate lending trends. "What you can infer from the numbers is there is not a lot of major (commercial real estate) sales taking place," he said.

TRW-REDI analyst Nima Nattagh noted that recent numbers also show that Japanese-owned California banks, which were among the top commercial real estate lenders in 1991, have disappeared from the list of top local lenders in 1992.

"The Japanese are pulling out," Nattagh said.

In a study of commercial real estate lending in the six-county Southern California area during 1991, Nattagh found that Sumitomo Bank, Dai-Ichi Kangyo Bank and Tokai Bank -- all California subsidiaries of Japanese banks -- held 9 percent of the commercial lending market. But by 1992, the collective market share for those three banks dropped to under 1 percent.

In a TRW-REDI survey of the top 10 lenders for Los Angeles County commercial real estate purchases between March 1991 and February 1992, three Japanese-owned California banks -- Sumitomo Bank, Union Bank and Dai-Ichi Kangyo Bank -- ranked No. 2, No. 4 and No. 5, respectively.

Sumitomo issued $97.25 million worth of Los Angeles County commercial real estate purchase loans between March 1991 and February 1992. Union Bank made $46.65 million and Dai-Ichi Kangyo made $45.1 million worth of L.A. County commercial real estate loans in that time period.

For the like 12-month period the following year, no Japanese-owned banks made the list of the top L.A. County commercial real estate lenders, according to the TRW-REDI's findings.

John Voorhees, a compliance officer at Sumitomo Bank in San Francisco, said the reason Sumitomo has pulled back from commercial real estate lending is: "We were criticized on our last examination by our regulator."

"The basic overall (criticism) was our loan portfolio was too much focused on commercial real estate lending," Voorhees said.

A banker at another Japanese-owned California bank, who spoke on the condition of anonymity, echoed Voorhees' explanation. The banker attributed the decrease in lending by Japanese banks all over California to an increase in pressure by federal regulators in the last 18 months.

"Regulators have expressed concerns about a disparity of real estate lending by Japanese-owned banks," the banker said.

A spokesman for the Office of the Comptroller of the Currency, which regulates nationally-chartered banks, said that regulators are concerned about real estate portfolios which contain large volumes of non-performing commercial real estate loans.

But the OCC, is not "focusing on Japanese banks," added the spokesman, Dean DeBuck.

Some Japanese bank officials said, if a number of Japanese-owned banks are pulling back, it is a coincidence, not a trend.

Rian Lidschin, a vice president at Los Angeles-based Tokai Bank of California, said that there is no stated policy at the bank to cut back on real estate lending. But Lidschin did concede that the bank is trying to concentrate more on making traditional business loans than on commercial real estate loans, in part because of the dismal condition of the commercial real estate market.

Joanne Curran, spokeswoman for Union Bank, also cited the "overbuilt commercial real estate market, especially in Los Angeles" for the bank's decrease in commercial real estate loans. "If anything, we would be holding the line for those reasons, not because we're Japanese-owned," Curran said.

The TRW-REDI report mirrors other recent reports that indicate Japanese investment in commercial real estate throughout the United States has dropped off significantly in recent months.

Fed economist Zimmerman said he has also noticed a decline in California real estate lending by Japan-based banks and Japanese-owned California banks.

The total amount of California real estate loans held by Japanese-owned banks declined in 1992, the first annual decline since the Fed started keeping statistics in 1985, Zimmerman said.

Specifically, Japanese banks held $29.4 billion worth of California real estate loans at the end of 1992, compared with a $30.7 billion portfolio at the end of 1991, Zimmerman said.

The TRW-REDI report also coincides with a report by accounting firm Kenneth Leventhal & Co. released in March which found that overall Japanese investment in U.S. real estate declined "dramatically" in 1992.

Total investment by Japanese banks and investors in U.S. real estate declined from $5.1 billion in 1991 to $807 million in 1992, according to the Leventhal study.

American-owned banks are also pulling back from making real estate loans -- especially large commercial real estate loans.

According to TRW-REDI, $100 million loans, or even $50 million loans, for the purchase of office towers are simply not being made in Los Angeles County. And such loans haven't been made for at least the past year.

The largest single commercial real estate loan made in L.A. County between March 1992 and February 1993 was for $11.3 million. And it was made by an insurance company, Prudential Insurance Co. of America, not a bank, TRW-REDI's Nattagh noted.

During the prior 12-month period, from March 1991 to February 1992, the largest loan for the purchase of L.A. County commercial real estate was for $142 million. And it was made by the Bank of New York.

Another significant trend is that some of the largest commercial real estate loans made during the 12-month period ended Feb. 28, 1993 were used to purchase apartment buildings, not office or industrial buildings, according to TRW-REDI.

Mary Trigg, spokeswoman for Irwindale-based Home Savings of America, the top L.A. County commercial lender for the 12 months ended Feb. 28, 1993, said Home Savings has had a policy for the last five years that it will not make loans for the purchase of office or industrial buildings.

The seeming contradiction is explained by the fact that Home Savings, while no longer issuing loans on office or industrial buildings, has remained one of the largest multi-family property lenders in the U.S., according to Trigg.

And since TRW-REDI classifies certain large residential loans as "commercial," Home Savings ended up being ranked as the top L.A. County commercial real estate lender for the 12-month period ended Feb. 28, 1993.

Specifically, the residential loans that TRW-REDI classifies as "commercial" are those of more than $2 million on properties with more than four units.

TRW-REDI classifies those $2 million-plus, multi-family property loans as "commercial" because the borrowers of such loans typically use the money to buy buildings for investment purposes, rather than as residences for themselves.

Home Savings is not the only local lender to establish a policy against providing acquisition financing for office or industrial buildings.

Troubled savings and loan Glendale Federal Bank, which ranked No. 2 on the list of top L.A. County commercial lenders for the 12 months ended Feb. 28, 1993, has had a policy prohibiting such loans for the last three years, said spokeswoman Judy Cunningham.

Cunningham explained that some of the $20.7 million in loans made By Glendale Federal in that 12-month period were made to facilitate the sale of commercial properties the thrift had foreclosed on in the last few years.

Glendale Federal has not lifted its policy against making new loans for office and industrial buildings, she said.

Lenders have not only cut back on loans for commercial property purchases, but have also cut back on loans for real estate construction, according to figures released by the Fed.

In California as a whole, the volume of outstanding construction loans fell by 40 percent in 1992 over 1991, according to the Fed's Zimmerman. The drop represents the steepest decline seen yet in the recession.

As of the end of 1992, the amount of California construction loans outstanding totaled $14.7 billion, compared with a year-end California construction loan portfolio of $21.9 billion at year-end 1991.

The total number of loans outstanding that are backed by commercial real estate, which includes most real estate purchase loans, but also includes other business loans backed by commercial real estate, increased by 2 percent in California in 1992 over 1991, Zimmerman noted. There were $34.3 billion worth of loans backed by California commercial real estate outstanding at the end of 1992, slightly more than the $33.5 billion at the end of 1991.

Zimmerman said part of the reason for the slight increase is that some banks are recategorizing "construction loans" as "loans backed by (commercial) real estate" when construction projects are completed.

As far as commercial real estate lending is concerned, "1992 was not a banner year," Zimmerman said.