Commercial Landlords Driven to Layoffs, Closures : * Vacancies: Overbuilding and underfinancing have brought home a crisis long predicted for Southern California.

Having avoided getting crushed in the nation’s brutal commercial real estate crash for months longer than many experts had forecast, worried Southern California developers and landlords are now feeling more squeezed and are cutting their staffs, seeking concessions from lenders and even closing buildings to stay alive.

Earlier this week, Los Angeles developer J. H. Snyder Co. narrowly avoided losing its Marina City Club project--built on Los Angeles County land--after its lender agreed to a rescue. But even with Aetna Life and Casualty Co.’s $450,000 payment on the $859,000 rent Snyder owes the county, the developer remains in default on its lease and must make another payment next week to keep the project, said Chris Klinger, deputy director of the county Department of Beaches and Harbors.

In downtown Los Angeles, a group of local investors who can no longer afford the $1-million annual maintenance on their half-empty Grand Avenue office building has asked building manager Lehndorff Corp. of Dallas to shut down all but the first of its 12 floors.

An affiliate of the Bank of Nova Scotia likewise is not renewing tenant leases in a nearby office tower at 612 Flower St. and is closing the 13-story building it took over last year.

Orange County’s Irvine Co. has dismissed 16% of its employees so far this year. Its current staff of 326 is nearly one-fifth the size of the company’s 1985 work force and the smallest since the mid-1960s. Meanwhile, the nation’s biggest developer, Santa Monica-based Maguire Thomas Partners, which last October boasted that it had the land and the plans to build 30 million more square feet of office space, in recent weeks has quietly laid off at least 20 executives and an undisclosed number of support staff from its work force of 200.

“It’s a very gloomy time right now,” said Nelson Rising, a senior partner at Maguire Thomas. “We were operating at a level that was not sustainable,” Rising said, noting that the firm just recently finished the Gas Co. tower and several other large projects that had required a large staff.

“We are probably one of the best positioned developers nationally at the moment, and we don’t have any problem projects,” managing partner Robert Maguire added, “but the cycle has not yet run it’s course. . . . There is certainly a lot more pain to come.”

For months, real estate analysts had predicted that Southern California--where a fifth of commercial office space stands vacant--was headed for a painful shakeout after a decade-long building boom fueled by developers’ overly optimistic projections of demand. Until recently, most Southern California developers had ducked the financial pummeling that humbled well-known real estate moguls such as New York’s Donald J. Trump and Atlanta’s John C. Portman Jr.

Further weakening among California’s already hard hit commercial real estate developers would not be good news to a state still reeling from major cutbacks in aerospace, retailing and banking. A recent survey conducted by the California Mortgage Bankers Assn. in Sacramento found that office buildings in 1991 accounted for 46.4%, of the $767.5 million in delinquent commercial real estate loans made by responding CMBA members.

“I don’t think most people have any conception of the devastation in commercial real estate,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County. “What we are faced with is pretty scary.”

While the biggest Southland developers say they are not facing any financial calamity, most are now more aggressively tightening their belts to stay afloat.

Homart Development Co.’s Southern California offices, for example, have been trimming staff and trying to limit spending by using their own workers to lease some buildings rather than outside real estate brokers, said Christopher Stirling, a vice president of the Chicago-based firm.

Maguire has decided not to renew the office lease at its 20,000-square-foot Santa Monica headquarters or to go ahead with an earlier plan to build a new home office in Santa Monica.

Instead, the company is moving into 25,000 square feet of space in its Wells Fargo Center building in downtown Los Angeles. Though company officials described the relocation as an efficiency effort, not a cost-saving move, they acknowledged that the recession was a concern.

In this tougher climate, Maguire, Dallas-based Trammell Crow Co., the O’Donnell Group of Irvine and other major developers have been branching away from full-time development and toward office-building management to tide them over. They enter a crowded field in which more seasoned players have already garnered a sizable share of the region’s building and asset management.

“Some firms will be able to make the transition more easily than others . . . but generally, the competitive climate is tougher today than it was some years ago,” said Robert J. Lowe, chairman of Lowe Enterprises Inc., which has been managing buildings more than 10 years.

Office developers have been hurt as conventional lenders, such as banks, have adopted more stringent lending standards. The share of real estate loans made by commercial banks has slipped to about 13% from 42% in the 1980s, according to the Price Waterhouse Real Estate Group in Los Angeles. And today, new office building financing is virtually nonexistent.

“The nation’s real estate markets are in crisis,” a Price Waterhouse study released earlier this month concluded. “In 1991, real estate returns for institutional investors averaged minus 2.3% (and) office property values dropped by at least 13%.” Because of the lack of lending, the report said: “Concerns about the future are growing.”

One indication of hard times may be evident in the financial woes of J. H. Snyder, which also built the $150-million Wilshire Courtyard, near the Los Angeles County Museum of Art, and Santa Monica’s $450-million Water Garden.

Snyder has said that its problems with the Marina City Club stemmed from the company’s inability to finance its purchase of condominiums.

Banks and other lenders won’t write mortgages on individual condo units because they are on land leased from Los Angeles County. The risk is that, even if the owner made all the payments, both the owner and the bank could lose the condo if Snyder ever defaulted on its land lease.

The financial hemorrhaging is so severe that condominium owners at Snyder’s Marina City Club have complained loudly of poor maintenance at the waterfront complex.

Chief Operating Officer Michael Wise acknowledged that the financial fallout from the Marina project threatens the rest of the company. Wise said Snyder will need further concessions from its lenders to stay in business.

“Certainly, the real estate market has been very difficult,” Wise said. “But the lack of our ability to finance the units has caused us some cash problems.”

Commercial Real Estate Tightens Its Belt

Growth in commercial real estate loans has slowed dramatically

1986 $119 billion

1987 $ 59 billion

1988 $ 78 billion

1989 $ 49 billion

1990 $ 44 billion

1991 $ 24 billion

SOURCE: Price Waterhouse Real Estate Group.

Because of the oversupply of office space and lack of tenants, office building owners have had the toughest time repaying their loans

1991 Loan Delinquencies Property type / Percent of Delinquencies

Office buildings: 46.4%

Retail property: 14.0%

Research & Development Buildings: 13.8%

Apartments: 13.0%

Industrial: 6.1%

Hotels, Motels and others: 6.7%

SOURCE: California Mortgage Bankers Assn. in a survey that covered 9,894 loans totaling $24.5 billion that were serviced by 23 California lenders. Delinquent loans totaled $767.5 million.

Times staff writer Susan Christian in Costa Mesa contributed to this report.