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Orange County : 1990 : THE YEAR IN REVIEW : Overbuilt to the Hilt, O.C. Office Space Goes Begging

December 28, 1990|MICHAEL FLAGG | TIMES STAFF WRITER

Last month, a commercial real estate broker camped out in the lobby at Price Waterhouse for three hours until the partner in charge of the accounting firm's Newport Beach office agreed to see him. The broker had been told to stay all night if necessary.

Price Waterhouse is leaving high-priced Newport Center and needs 40,000 square feet of office space, a sizable amount. So desperate are landlords to fill their empty buildings that the firm has been besieged with offers. (The broker, incidentally, didn't get a deal; Price Waterhouse had already narrowed its search to a few buildings.)

Developers have built more than half of Orange County's 40 million square feet of first-class office space in the last five years. Eleven million square feet of it--equal to 550 floors of the average high-rise office building--sits vacant.

Landlords charge rock-bottom rents, offer free parking, even part-ownership in the building--anything to get tenants in the door.

The construction boom was never totally driven by a need for all that space. The lenders simply had a lot of money to lend, and the development companies had grown so large that they had to either keep building or start to shrink.

This year, however, the tidal wave of construction finally slowed. The money dried up after the thrift industry crashed and the banks came under the worried scrutiny of federal regulators. But it appears to be too late. At the rate tenants leased new space last year, it will take four years to fill all the empty office space on the market. And there was 3 million more feet under construction near the end of the year.

"The whole thing's kind of scary," says Scott Perley, a commercial real estate broker. "The figures show that office space is still growing at 7% a year. But jobs in the service industries are only growing at 3%, and it'll probably be less next year."

Meanwhile, real estate is such a large part of Orange County's economy that the construction slump promises to make the recession here that much deeper.

Here's a look at how four people in four different parts of the real estate business are coping with the downturn:

At the International Brotherhood of Electrical Workers offices in a rundown Santa Ana neighborhood, Bob Balgenorth is thinking about the last recession, when home builders broke the construction unions in Orange County.

Now construction is going down the tubes again and the big office and hotel projects that are the building unions' last toehold here are vanishing. Nine thousand construction workers lost their jobs in the last year, a big chunk of the 50,000 people unemployed in the county.

Will the big construction companies take advantage of this recession to try to smash their unions, too?

"Builders always kick that idea around," Balgenorth says. "The first thing that happens in a downturn is people say: 'Where can I cut costs? Can I cut out the union?' "

The local IBEW is so weak compared to its counterparts in union towns such as New York that the 1,600-member local sometimes subsidizes part of its members' $24.90-an-hour wage so union contractors can bid for business as low as non-union contractors.

That kind of thing, Balgenorth says, makes it harder to dislodge the local unions nowadays.

Meanwhile, the places construction workers are likely to be looking for jobs in the next few years are in public-works programs such as highway construction, Balgenorth predicts.

And on the bright side, the downturn may even bring local unions some new members, he says.

"If you're working for a non-union guy for $12 an hour and he cuts your wage to $10, what are you going to do?

"You're going to think about joining a union."

Some people think it's significant that Ray Wirta, named president of the Koll Co. early this year, has spent much of his career in charge of managing buildings.

For that, they say, is how Koll and other developers are going to earn most of their money for at least the next several years.

Look at the figures: Last year Koll developed 3.5 million square feet of space, an amount equal to about a third of New York's giant twin World Trade Center towers, enough to make the Newport Beach-based company the biggest developer on the West Coast.

This year, however, it was 3 million square feet. And next year, it'll be 1.5 million, Wirta says.

From his office on the top floor of Koll's sleek, three-story glass building, Wirta can look out on the urban canyons of the John Wayne Airport area, a neighborhood where only 20 years ago quail nested in open fields.

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