Sherman Oaks McNeill Plaza Owner Files for Bankruptcy

The owner of the landmark 21-story McNeill Plaza has filed for bankruptcy, a late victim of the 1980s real-estate boom.

Owner Roy L. McNeill, partner in The McNeill Group, said plummeting rents forced him to seek Chapter 11 bankruptcy protection despite the fact the building is nearly fully leased.

“Rents on Ventura Boulevard eroded, and we had to stay with the marketplace,” McNeill said.

Prominently placed on the corner of Sepulveda and Ventura boulevards, the tower is “a hallmark of Sherman Oaks” said Chamber of Commerce President Carrie E. Konjoyan. It’s home to some of the boulevard’s most prestigious firms, including Coopers & Lybrand and American Pacific State Bank.

The McNeill Group filed an incomplete, voluntary petition in U.S. Bankruptcy Court on May 31 specifying only that both its assets and its debts are between $10 million and $100 million, according to court documents. Creditors include mortgage lender John Hancock Mutual Life Insurance Co.

Although the trek into bankruptcy of one of the boulevard’s premier properties carries symbolic weight, area brokers say it doesn’t reflect current trends.

The filing comes at a time when the Valley commercial real estate market has stabilized, and even rebounded slightly, they said.

The McNeill Group’s troubles are “a leftover” of the wild swings of a few years ago, said Tim O’Rourke, assistant director at Julien J. Studley Inc., a West Los Angeles brokerage.

“It’s meaningless,” added Michael Zugsmith, chairman of Capital Commercial/New America, an Encino brokerage. Zugsmith called the bankruptcy filing a strategic maneuver by McNeill to move negotiations forward with John Hancock.

Brokers point to commercial vacancy rates, which declined in the central San Fernando Valley to 14.5% in the first quarter of this year, according to Grubb & Ellis Co. At the same time last year, vacancies were 18%.

Leasing rates in the tower are back in the range of $1.85 per square foot, up from $1.65 three years ago, said Bill Inglis of CB Commercial in Sherman Oaks, leasing agent for the tower.

But the recovery apparently hasn’t come quickly enough to rescue the tower from debts incurred in headier times.

McNeill Plaza was built in 1984, just as a feverish speculative market in commercial real estate was taking hold. With the recession of the early 1990s, “rents went to hell,” said Inglis. Tenants suddenly had their pick of nice offices for two-thirds the price.

Once assessed at $66 million, the building’s value has dived, McNeill said, adding that it was recently reassessed at $60 million. John Hancock’s loan on the property totals about $68 million, with another $2 million tacked on for earthquake repairs, McNeill and a John Hancock executive said.

The bankruptcy petition changes little for tenants at the tower at 15260 Ventura Blvd. McNeill will remain in possession of the building, though John Hancock now is barred from foreclosing.

The Sherman Oaks commercial real estate market, meanwhile, is poised for slow, predictable growth, said Zugsmith of Capital.

But, said broker O’Rourke, “the million-dollar question” is whether rents will rise quickly enough to cover the huge debts incurred in the ‘80s, and spare others McNeill’s fate.