KING CASE AFTERMATH: A CITY IN CRISIS : Riot May Send Economy Into a Deeper Hole

The mobs torching buildings and looting stores in Los Angeles will further damage the recession-racked Southern California economy, resulting in lost commerce and jobs and hurting the region’s ability to retain and attract new industry, economists and business leaders say.

As many as 10,000 businesses--large and small--may have been burned, looted or destroyed in the last two days, according to an early estimate by Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County, a private-public group. Many will probably not be rebuilt.

The reconstruction effort will be daunting, with more than $500 million in property damage alone, a grim-faced Mayor Tom Bradley told reporters Friday. The toll includes 1,360 buildings either destroyed or heavily damaged.

In addition to straining tight state and local budgets, the damage will also result in an incalculable loss of jobs and incomes that will certainly raise the area’s unemployment rate and could push the region’s recovery from recession into 1993, Kyser said.

Uncertainty about the region’s stability and safety could delay investment and reverse the nascent recovery in key economic sectors:

* Some foreign investment has been put on hold. Knight Frank Faulkner Baillieu, an international commercial real estate brokerage, said that 80% of its proposed deals with investors in Asia and Europe have been suspended for at least two to three months. The decisions affect more than $100 million worth of property in Los Angeles, said Rex K. Smith, the firm’s director of investment.

* Tourism, which had begun to rebound, will suffer. Japan’s largest travel agency has canceled tours scheduled to arrive between now and May 6, resulting in the loss of 1,200 tourists to the city. At least one major convention has also been canceled.

* Retailers, restaurants and other service enterprises can expect the slumps to continue as long as curfews and widespread fear prevent residents from venturing out. During the Persian Gulf War, consumers held off purchases out of uncertainty, and economists predict a similar response now.

* Wolfgang Puck’s four trendy restaurants--Spago, Eureka, Chinois and Granita--were closed Thursday night, and only Granita in Malibu was open Friday, said Puck’s general partner Tom Kaplan. The closures, to comply with the citywide curfew and to protect employees who may have to travel through unsafe parts of town, will cost the eateries between $40,000 and $50,000 in gross sales per day, Kaplan said.

* The construction trades, which collapsed with the real estate market, can expect only a mild boost as damaged buildings are repaired. Experience from previous disasters, such as earthquakes in Whittier and the Bay Area, shows that the loss of wealth more than offsets any temporary gain in construction business, said Ben Bartolotto, research director at the industry-funded Construction Industry Research Board in Burbank.

* Banks and other financial institutions stand to lose money. “Nearly every bank has some customers in the areas that have been hurt, so they could face problem loans and loan losses,” said Alexander Kyman, president and vice chairman of City National Bank.

* The prospect of millions of dollars of public assistance to help repair damage could hurt the state’s credit rating, already on shaky ground because of the budget crisis, analysts say. That would raise the state’s cost of borrowing money.

Perhaps most damaging, the riots will certainly exacerbate the image of Los Angeles as a “Blade Runner” urban landscape of crime and decay--an image that has begun to overtake the palmier stereotypes of the past in many mass media reports, to the area’s economic detriment.

But it is unclear how significant the long-term damage may be. Part of that depends on the extent of the riots and how long it takes to bring them under control. Although the looting and fires could make nearby states look better to businesses seeking an escape from Southern California’s troubled economic climate, few businesses list crime or safety issues as the prime reasons for leaving the state.

“This doesn’t hurt states like mine that want to recruit (jobs),” said Bob Potter, president of Jobs Plus, the economic development office in Coeur d’Alene, Ida. But he added that the riots will not be a company’s prime reason for relocating. Rather, he said, the blame goes to taxes, regulation and--especially--high workers’ compensation costs.

“The crime and lawlessness are severe,” Potter said. “But this is simply piling more (problems) on the table.”

Economists also argue that short-term disruptions do not change the underlying factors that stimulate immigration into California or spur businesses either to arrive or to leave the region.

Outside the areas where the riots resulted in direct damage, it is unclear how much real estate values may be affected. “The underlying unmet housing need is so great that you won’t see prices decline. . . . (The riots are) obviously only one factor among many,” said Leslie Appleton-Young, vice president of research for the California Assn. of Realtors. On the plus side, the riots could spur new efforts by government and industry to encourage economic development, as the Watts riots did in the 1960s, economists said.

On Friday, the city’s Community Redevelopment Agency met in emergency session and approved a program to provide $20 million in outright grants to businesses and homes in its 17 redevelopment areas throughout the city. The grants program needs to be approved by the Los Angeles City Council, which is to take up the matter Tuesday.

The riots come just as business and civic leaders are struggling toward a strategy to retain and attract jobs and industry. Last week, the governor’s Council on California Competitiveness released a 100-plus page report detailing proposed policy changes to correct what it called the state’s anti-business climate.

“The recovery process must begin the moment the last ember is doused and jobs must be the medicine of recovery,” said former Olympics organizer Peter V. Ueberroth, the council’s chairman, in a statement this week.

For now, however, business people such as George Randall are disgusted with Los Angeles.

Randall, chairman and chief executive of YES Clothing Co., said a mob of about 300 looters--some armed with automatic weapons--ransacked the company’s finished goods warehouse in the 1300 block of West Washington Boulevard on Thursday night, stealing about $2 million worth of garments, scattering cartons for blocks and trashing computer and office equipment.

“There were strollers, grandmas and grandpas,” he said. “They were laughing, screaming and carrying on.”

Although Randall said insurance will cover his losses, he is angry at the city and Bradley, who he says did little to prevent the damage. He says it is also making him think twice about doing business in Los Angeles, though he vows to continue for the sake of his 150 or so employees.

“I wish I could meet with city officials and ask: ‘What are you going to do with the gangs in this city?’ ” he said. “Are we totally powerless here? Is there nothing we can do to protect our jobs, our livelihoods?”

The most immediate effects on the local economy have come through lost productivity and trade as businesses throughout the city close their doors for the day.

Flights, trains and telephone calls into and out of the city have been curtailed.

All major movie studios have shut down production, with filming put on hold. Similarly, some television productions were postponed.

Clearly, the most devastating effects to business were in areas hardest hit by the riots. In South Los Angeles and other affected neighborhoods, residents were left without access to the most mundane businesses: supermarkets, gas stations, drugstores.

“The effects are going to be dramatic,” said Carlton Jenkins, managing director of Founders National Bank, the city’s largest black-owned bank. “Only recently has there been a great deal of impetus to revitalization and improving quality of life here in South-Central, and this will set that effort back dramatically.”

Despite the fires and looting that occurred in riot-battered areas of Los Angeles, Latino shopkeepers and business people are not likely to vacate, said officials at the Latin Business Assn., a trade group with more than 1,000 members in Southern California.

Their investments are too great and the market for their goods and services is too vast, said Ana Cobian, the trade group’s business development manager. “It would be difficult for Hispanic businesses to pack their bags and leave,” Cobian said.

But the rioting could put a chokehold on tourism in the Los Angeles area for months--or even years--to come, said travel industry executives.

“In our business, image is reality,” said Michael Collins, vice president at the Los Angeles Convention & Visitors Bureau. “The image of Los Angeles now being seen by people in London and Tokyo contradicts everything we would like to communicate about this destination. And that’s painful.”

Organizers canceled an annual exposition for hospitality industry designers set for Thursday through Sunday in Los Angeles that was expected to draw 3,300 people from as far away as Egypt. Nine other sizable conventions are booked in Los Angeles in May--none of which have yet canceled.

Big-spending international tourists will likely be the slowest to return to the area.

In Tokyo, the Japan Travel Bureau canceled 120 tours that had been scheduled to arrive in Los Angeles between Friday and Sunday. The Japan Travel Co., another large travel agency, canceled 100 tours scheduled to arrive at points on the West Coast from Saturday through Tuesday.

Similarly, Japan Air Lines reported that 40% of its bookings from Tokyo to Los Angeles had been canceled since the riots began.

In Seoul, Lee Sang Ki, a Korean Airlines spokesman, said 16 of 42 passengers failed to show up for KAL’s first flight of the day to Los Angeles Friday, while 86 of 279 passengers booked on the airline’s second Los Angeles flight canceled their reservations. Northwest Airlines in Seoul said its cancellations were running at about 30%.

Looking beyond the immediate effects, economists differ on the outlook for the long term. “There’s no question that this becomes a clear negative,” said a somber Ray Remy, president of the Los Angeles Area Chamber of Commerce. “It’s being viewed locally, nationally and internationally.”

Still, from a business standpoint, he said, “the image problem is a difficult one, but I don’t think it will spur a lot of businesses to leave.”

David Shulman, a stock analyst for Salomon Bros., told the Dow Jones News Service that the riots, like those in the 1960s, might accelerate the suburbanization of the city, which would benefit Southern California home builders such as Kaufman & Broad Home Corp. and Ryland Group Inc.

Allen Scott, director of the Lewis Center for Regional Policy Studies at UCLA, had a different reaction. “In terms of the long-run industrial and economic development of Los Angeles, the riots probably won’t have strong effects, except insofar as policy-makers might realize that finally something has to be done about the chronic shortage of jobs for blacks and the low quality of jobs that are being generated by much of the economic system.

“This is an ill wind that blows nobody any good, but some good may come of it in the sense of a more active and more creative industrial policy of some kind,” he added.

The afternoon before the mobs rampaged through downtown Los Angeles, Rex Smith was here showing a group of Canadian bankers around, reassuring them about the value of possible investments. Then the fires began. And the Canadians had a box seat to the conflagrations from their suites at the Sheraton Grande Hotel downtown.

As the fires continued Thursday, the Canadians flew out, and Smith doubts that they will be back. “I think this will have some impact on them,” he said.

Contributing to this story were Times staff writers Bruce Horovitz and John Schwada in Los Angeles, Martha Groves in San Francisco, Sam Jameson in Tokyo and William Tuohy in London. Times special correspondent Chi Jung Nam in Seoul and researcher Norma Kaufman in San Francisco also contributed.

Costly Riots

Here is a list of the 10 costliest civil disorders in U.S. history. Estimates for insured losses in this week’s rioting in Los Angeles will not be available for several days.

1. Los Angeles Aug. 11-17, 1965 $182,565,079 2. Detroit July 23, 1967 $162,396,707 3. Miami May 17-19, 1980 $103,497,269 4. New York City July 13-14, 1977 $90,137,931 5. Newark July 12, 1967 $58,796,605 6. Baltimore April 6-9, 1968 $52,580,460 7. Chicago April 4-11, 1968 $48,824,713 8. Washington, D.C. April 4-9, 1968 $45,292,079 9. New York City April 4-11, 1968 $15,774,138 10. Pittsburgh April 4-11, 1968 $7,511,494

The figures reflect insured losses and are adjusted to 1992 dollars.

Source: Insurance Information Institute