EARTHQUAKE: THE LONG ROAD BACK : Chaos Is King as Businesses Frantically Look for Office Space

Frenzy gripped Los Angeles’ commercial real estate market Wednesday, as businesses whose offices were damaged by the earthquake scrambled to find new space and building owners struggled to assess their damage and persuade tenants to stay.

Meanwhile, the sales of half a dozen high-rises around the county worth a total of $100 million were thrown into limbo, as buyers and their lenders demanded that the properties be reinspected.

In the long term, real estate brokers said the quake might actually help the office market by spurring new construction projects. But on Wednesday, chaos was king.

“All hell has broke loose,” said Mark Sullivan, who represents several San Fernando Valley and Westside office tenants and owners for the Julian J. Studley commercial brokerage firm.

Hundreds of buildings in the Valley and other parts of Los Angeles County remained closed Wednesday because they had yet to be visited by overworked government building inspectors, sources said.

As a result, no one has been able to make a firm estimate of how much office space had been damaged or destroyed, although the figure will undoubtedly run into the millions of square feet.

“A lot of people don’t even know if they’re still in business, because they can’t get in through their own front door,” said Carla Gazzolo, a broker who runs the San Fernando Valley operations of CB Commercial.

Brokers said newer high-rises in downtown Los Angeles suffered little damage and that all of them remained open. But some older structures built prior to strict seismic codes sustained a range of problems, from broken water pipes to severe structural damage.

Some analysts worried that owners of buildings that sustained major damage might simply let their lenders foreclose. Property values of some office complexes in the Valley and other parts of the county have dropped more than 20% over the past few years, so landlords have little reason to spend millions to repair their money-losing projects.

But in the long term, brokers said, the earthquake may provide some benefits for the overbuilt office market in Los Angeles County.

Vacancy rates across the county stood at about 19% before the quake, a lofty figure that has discouraged new construction projects and forced landlords to slash their prices in order to lure new tenants.

But the quake apparently wiped out a good-size chunk of that vacant space, particularly in the Valley. That could push rental rates higher and persuade developers to finally launch new projects.

“The quake created demand for new office space, and we haven’t had a lot of demand for quite a while,” said Ray Lepone, a broker in the Downtown office of Grubb & Ellis Co.

Broker Sullivan said he has been trying to find tenants for 100,000 square feet of vacant office space for a building on the Valley’s trendy Ventura Boulevard for several months. On Wednesday alone, he received 20 calls from prospective tenants by lunchtime.

“It’s like suddenly I’ve got the hottest project in town,” he said.

But some business owners looking to rent temporary space until their permanent headquarters could be restored were already complaining Wednesday that landlords were demanding exorbitant rents and move-in fees.

Other landlords were giving priority to tenants who would agree to sign longer-term leases--a difficult proposition for small businesses that need space for only a few months.

“All things being equal, we’d prefer a tenant who will stay with us for a while than someone who is going to be gone in a couple of months,” said Mark Lainer of Lainer Development, a Van Nuys-based company that owns dozens of properties in the San Fernando Valley. “We’re not gouging anyone, but we’re certainly being practical.”

Pat Penney, owner of a small public relations firm in Burbank that bears her name, said she and her assistant will probably be working out of their homes for a while because their office building has been closed by quake damage.

“I guess we’ll just have to throw our computers in the car and set up shop in our dens,” Penney said, taking a break from sweeping up the debris on her floor and picking up her toppled file cabinets.

Larger businesses don’t have the luxury of being so mobile.

Howard Levine, president of ARCS Mortgage, said the lending giant’s sprawling headquarters in Calabasas suffered major damage from the quake. The temblor caused the fire sprinklers to go off, and they stayed on for three hours--soaking thousands of important loan documents and causing the ceiling to collapse.

But since the main computer ARCS needs to process 90,000 loan payments a month can’t be easily uprooted, Levine said the company cannot simply move its operations to temporary quarters. Thanks to luck and a round-the-clock effort by its staff, power to the building was restored Monday night and the computer came back on line.

With electricity restored, dozens of company employees spent Tuesday and Wednesday using hair dryers and fans to dry out reams of soggy loan documents.

“We’ve had better working conditions,” Levine said, “but at least we’re back in business.”