Expert Waxes Pessimistic on Southland Real Estate : Outlook: Respected Berkeley consultant sings a different tune a year after issuing a report that predicted a fast recovery for Southern California.

A year after issuing a widely publicized study that forecast a fast real estate recovery in Southern California, a respected Berkeley consultant has told Citicorp that the region’s markets “are weakening” and that the Los Angeles riots will spur a flight of white residents that could have a serious effect on property values.

In one of the most pessimistic reports yet on the region’s troubled real estate market, Kenneth T. Rosen, a consultant who is also chairman of the Center for Real Estate and Urban Economics at UC Berkeley, advised the New York-based lender that downtown Los Angeles is suffering from a seven- to 10-year oversupply of office space.

Additionally, he said, Orange County’s apartment vacancy rate could more than quadruple if Newport-based Irvine Co. delivers--all at once--the 5,520 apartment units that Citibank has promised to lend the developer money to build.

“Already the burden of costs, real and psychic, is high in Los Angeles,” Rosen wrote in a 59-page confidential report that cited “still-dirty air, the high level of traffic congestion and long commutes, the relatively high cost of housing and the crime-riddled poor ghettos of East and South-Central Los Angeles” as major drawbacks to the region.

Rosen said those factors as well as “the riots in Los Angeles will accelerate (white) flight” and that, because of the civil unrest, housing location decisions “could well go against Los Angeles.”

But noting that demand for residential housing in Orange County is stronger than for commercial office buildings throughout the region, Rosen recommended that Citicorp “should be accommodating now” with office developers that are behind on their loans but “be relatively firm with borrowers in dealing with delinquencies and non-performing” residential loans in Orange County.

Rosen is a highly respected real estate expert who oversaw a UC Berkeley study that predicted last September that “California real estate markets will be healthy during the 1990s” and that the state would “emerge from the current recession at the same time and with the same strength as the rest of the country.”

However, California now lags behind most of the nation in breaking out of the recession.

Rosen declined to elaborate on his most recent analysis, saying: “The report that you are referring to is obviously confidential and I can’t comment.”

A spokeswoman for Citicorp also demurred, saying “the study . . . is one of a variety of sources that we use in making business decisions and evaluating our portfolio out there in California.”

While the Rosen report predicted that population growth and an upturn in the national economy will eventually lift Southern California’s beleaguered real estate market, it warned that homeowners, developers and real estate investors should brace for further uncertainty in the short term.

Rosen noted that area apartment rents paid to landlords have been declining in real, inflation-adjusted terms since 1988. He also said that multifamily permits--for apartments and condominiums--have been falling since 1986, when the overbuilt condition of that market reached its peak.

Similarly, single-family home prices have slumped, Rosen said. The biggest price decline has come in pricey Laguna Beach, where the per-square-foot price paid for homes fell 11.8% last year.

A real estate executive who has read the report and is close to Citibank said the document has stirred concern at the bank, which--according to the report--has made residential construction loan commitments totaling $589.7 million in Southern California, mostly in Orange and San Diego counties. Overall, Citicorp reported that it had $11.5 billion in commercial real estate loans outstanding as of June 30, 1992, and about $2.2 billion in California.

“Inside Citicorp they are very tense,” the executive said. “Some of them weren’t even aware” of the extent of the deterioration in Southern California real estate.