Joint Effort Is Reviving the Office Marketplace
The Northridge earthquake played a significant role in the metamorphosis of the office marketplace within the San Fernando Valley.
Over 1.5 million square feet of office space was temporarily or permanently lost in the Valley. Most of this loss occurred in the Sherman Oaks and the Van Nuys sub-markets. Many buildings were demolished, and many more required major repairs or renovation, which temporarily displaced tenants and businesses to other sub-markets. This resulted in many business failures.
Tenants, landlords and lenders experienced tremendous upheaval and inconveniences, as insurance policies were explored, Small Business Administration loans pursued and foreclosures occurred. Some markets, such as Encino and the Conejo Valley, experienced immediate occupancy increases, while others in Northridge and Panorama City realized huge increases in vacancies.
New emphasis was placed on “damage and destruction” lease clauses. Most of these lease clauses require the lease remain in effect and rents abated while the landlord rebuilds the damaged property within the stated time parameters, ranging generally between one and two years. These time frames were, of course, unrealistic, cumbersome and impractical for the success and health of a business severely impacted by the quake. Landlords, tenants and lenders have been jostling legal strategies since Jan. 17, 1994. Legal uncertainty exists with all, and the courts will ultimately decide on the legality, practicality and reasonableness of existing lease language.
A monumental, cohesive effort was initiated by government and the private sector to rejuvenate, repair and revive the Valley. The magnitude of the problem is nearly overwhelming. The Valley is a region with a population approaching 2 million, an infrastructure maintained by a cash-strapped city of Los Angeles, an office market of over 30 million square feet, a multifamily residential market where 23,000 units have been damaged or destroyed and unfit for occupancy, and an area with diverse demographic profiles. It must rebound and achieve economic and strategic viability.
Task forces have been formed and new problems implemented. When the dust settles, more than $20 billion will have been pumped into the Valley’s economy.
This capital and contingent resources will benefit the economy immensely and spur long-overdue recovery of a commercial real estate market that has been overbuilt and has seen the bottom for nearly five years.
Supply has diminished and demand increased. The outlook is encouraging. The collective and collaborative continued efforts and energy of our people, our private sector and our government will mandate a recovery and a return to prosperity in 1995.
BRUCE A. FRASCO
Sherman Oaks
Frasco is executive vice president/manager of Beitler Commercial Realty Services.
