County Banking on Success of Office Park on Its Land

Despite a vacancy rate of more than 30% among commercial buildings in the Long Beach area, Los Angeles County officials are pinning great hopes on the success of a business park under construction there, the first private office venture ever developed on county land.

William J. Lewis, the county’s lease administrator, said his office “is extremely bullish on the Signal Hill-Long Beach project” despite high vacancy rates plaguing two other developments next to freeways in Long Beach and the high commercial vacancy rate citywide.

He said Goldrich Kest & Associates and Sheldon Appel Co., developers of the site where Long Beach General Hospital once stood, have already leased the first phase--445,000 square feet--to the West Coast headquarters of Eastman Corp., a furniture and office supply company.

And, spurred by what they say is a strong local market, the county and developers have moved up the construction schedule on the remaining two phases and have increased the size of the complex by about a third. The remaining phases include two 8- to 10-story office towers and a 240,000-square-foot center for high-tech, no-smog industry.

$2 Billion in Income

By the early 1990s the complex at Redondo Avenue and Willow Street will offer 985,000 square feet of warehouse, office and retail space on county land--all of it generating land rentals for county coffers estimated at more than $2 billion over the 66-year life of the lease.

If the 26-acre, $80-million pilot project on the Long Beach-Signal Hill border succeeds, the Board of Supervisors can be expected to launch dozens of similar partnerships with commercial developers. Lewis said such projects potentially are worth billions of dollars in long-term land-rental fees for the financially pressed county.

“It represents a real answer to county budget shortfalls,” Lewis said. “We can make a great deal of money and still have an asset at the end of the lease. That’s the raison d’etre of this whole program.”

Because of limits under state law, the county has always sold its commercially viable vacant land, allowing private developers to construct projects and reap the long-term profits. But in 1983, Los Angeles County officials were instrumental in changing a state law that allowed only culturally oriented developments on county land.

Now, Lewis said, counties are also permitted to build commercial projects.

But not everyone is happy about the pilot project. The Board of Supervisors approved the Long Beach-Signal Hill proposal in 1984 despite a storm of local protests. Among other things, opponents claimed that the county would not generate anything approaching the $1.5 billion it projected early on, which was based on an inflation rate of 6% per year over the 66-year lease.

County ‘Is Kidding Itself’

Max Ruchames, a spokesman for the Long Beach Health Advisory Council, which unsuccessfully fought the destruction of the old hospital, said last week that the county “is kidding itself if it thinks it can project inflation or what is going to happen to technology and the economy 20, 30, 60 years down the road.”

Ruchames said he consulted with several Los Angeles developers, who told him the 66-year projection by the county was unrealistic. He criticized the county’s arrangement as “a giveaway where the developers are going to make out like bandits since they didn’t have to pay up front for the land.”

Although Lewis conceded last week that the 6% inflation rate used by the county “is frankly too high,” he said the county fully expects to bring in more than $2 billion, especially now that the project’s size has been increased.

“Even if we don’t see sustained high inflation, we can expect real economic growth in that area,” Lewis said.

“Long Beach and Signal Hill are coming to the fore; it’s a hell of a location, a good place to locate,” he said. “We’re very bullish about it, and we’ve got good developers who understand that if they make money, we make money.”

Towers by End of 1987

By the end of 1987, Lewis said, the first of two office towers will be completed. The third phase will be constructed as early as 1990 if the market holds up.

Experts in the commercial leasing market agree that Long Beach is facing a generally positive future, but noted that major new projects in the area experienced a very mixed year in 1986.

Geoff Ely of the Building Owners and Managers Assn. said his office has just completed its 1986 building survey and found that office vacancy rates in Long Beach, which skyrocketed last year to 40% when several major projects were completed at the same time, decreased to near 30% this year.

But according to the study, Long Beach still has one of the highest vacancy rates in the county--one-third higher than Los Angeles’ highly developed Westside and equal to vacancy rates in the Pasadena-Glendale area, where numerous major projects have been completed.

Commercial real estate consultants agree that Long Beach is undergoing a dramatic business renaissance. From 1980 to 1984,, developers created 2.3 million square feet of commercial space, according to the association. From 1970 to 1979, only 72,000 square feet of commercial space was built.

Paul Garity, a partner in charge of real estate consulting for Peat, Marwick, Mitchell & Co., who has just completed an analysis of the greater Los Angeles area, said vacancy rates are improving in Long Beach as the commercial space that saturated the city last year is absorbed.

Pacific Rim Trade Cited

“Absorption of that space has been pretty strong this year because of the interest among people in the Pacific Rim trade through Long Beach Harbor,” Garity said. “Things look quite a bit better than last year.”

However, he said, new business parks next to the San Diego Freeway in northern Long Beach--not far from the county’s project--have experienced mixed success.

For instance, new buildings near the Long Beach Municipal Airport, just south of the county’s project, were quickly snapped up by McDonnell Douglas Corp. and other aerospace-related concerns, making that market “particularly hot right now,” he said. But farther south, a Bixby Ranch Co. development in the Seal Beach area has failed to attract major tenants, Garity said.

Also, several new buildings immediately north of the county project, at the intersection of the San Diego and Long Beach freeways, are having trouble filling up, he said.

“Hughes took a big building at that (Long Beach Freeway) site but the site hasn’t caught on as fast as people thought,” Garity said, because of the success of a major industrial park northwest of there, at the intersection of the Harbor and San Diego freeways.

“That area’s putting a damper on the stuff in Long Beach,” Garity said.

Lewis said that while vacancy problems near the Long Beach and San Diego freeways intersection “are a relevant comparison” to the county’s new project nearby, “I can only tell you our developer feels very strongly about a potential for the site, and we share that enthusiasm.”

Other Projects Planned

In fact, Lewis said, the county is already moving forward on two other projects proposed on county land in other communities. The Board of Supervisors has approved a major development near Chinatown and one in Marina del Rey. They expect to approve a third commercial project in downtown Los Angeles soon.

So far, Lewis said, the cities in which the county has proposed such projects have welcomed the prospects for increased tax benefits.

“We are taking under-utilized property and putting it on the tax rolls, so the cities like that,” he said.

Robert Paternoster, director of planning for Long Beach, said the city supports the county’s development and is already working on a traffic plan to handle increasing congestion from developments in the vicinity of the airport, including the county’s complex.

“We are absolutely behind their project,” Paternoster said. “We rezoned the area in cooperation with the county, and we’ve had a good working relationship with them.”