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Weak Economy Puts Brakes to Building Boom : Development: Construction permit valuations in Long Beach expected to drop about 16% from $311 million to $260 million.


LONG BEACH — A sluggish office market and a weak economy have put the brakes on the building boom of the late 1980s, and city officials predict that new construction this fiscal year will fall to its lowest level since 1985.

Eugene Zeller, the city's superintendent of building, said the recent decline in monthly construction permit activity represents the most prolonged local slump he has seen in 14 years.

"I expected a temporary aberration. I'm surprised . . . that this has lasted for five or six months," Zeller said. "And there's no indication that it's suddenly going to bounce up."

Based on the building permits his office processed during the past six months, Zeller is predicting that the value of new construction in Long Beach will drop about 16%--from $311 million to $260 million--during the city's fiscal year, which ends in June.

He also expects building permits to fall to 13,500, compared to the 14,000 issued in the last fiscal year and the 15,000 issued the year before that.

Commercial construction plummeted dramatically in the city during the second half of 1990, according to figures from the Construction Industry Research Board in Burbank. Whereas the monthly average of new commercial construction was $14.5 million in the first half of the year, it was down to about $5 million a month in the last six months, said Ben Bartolotto, the board's research director.

The fall in residential construction and remodeling was less steep but still significant, from a monthly average of $17.5 million in early 1990 to about $10 million a month in the final months of last year, according to Bartolotto.

The slowdown reflects a national construction slump caused by recession worries, overbuilding, tight financing and a glut of empty commercial space.

Many of the same factors are at work in Long Beach, where three major new office buildings and two hotels have either opened in the past couple of years or are under construction.

"Right now we have such a tremendous imbalance of supply and demand," remarked Stanley Cohen, managing partner of Shoreline Square, a 2-year-old downtown complex that includes a new office building that is only 55% leased.

"It certainly does not suggest anybody is going to think about putting up a new office building in the near future."

The new World Trade Center has been more successful, with about three-quarters of its space leased, but the new, 24-story Landmark Square office building will open next month, adding to the competition. Altogether, the three projects have increased downtown's office space by 40%.

Zeller said the slowdown may seem more dramatic than it really is because so many major projects were built in recent years, driving construction to a high of $487 million in fiscal 1986-87.

"I feel very comfortable with the health of the construction economy. There are too many things in the wings," Zeller added, referring to plans to build a new movie theater complex downtown, expand the Convention Center and put up a massive new complex on the site of the old Pike amusement park on the waterfront.

Still, Pike is another example of the soft real estate market. Deciding now was not the time to add more hotel and office space to Long Beach, developers of the $1-billion waterfront project recently ditched their plans to put up office and hotel buildings in the first phase, and will instead build residential and retail units.

Larry Agajanian, a residential developer, said several factors have slowed apartment construction in the city. "Less availability of financing, the increase of land prices and the increased cost of development due to (the city's) new design criteria--I think all have had an effect."

Bankers, made cautious by national real estate troubles, are demanding more equity from developers. Banks used to loan as much as 85% of a project's cost, but now restrict their loans to 60% to 75%, Agajanian said.

Others complain that a new city requirement to preserve low-cost housing has made some apartment and condominium projects too expensive to build.

"Our little bank has looked at seven or eight deals that are not financeable," observed Jim Gray of Harbor Bank. "It has a stifling effect," he said of the ordinance, under which developers who demolish low-cost housing must either replace the units or contribute to a city housing fund.

The City Council is now revising the law, which has been bitterly attacked by developers.

Despite the falling construction figures, the business community says the bloom is not off Long Beach's revival.

"We're definitely very concerned about it," conceded Randal Hernandez of the Long Beach Chamber of Commerce. "But we're cautiously optimistic that we'll be able to rebound . . . faster than most cities. . . . I don't think it's any reflection on Long Beach's marketability."


The total value of new construction in Long Beach, by fiscal year:

1978-79: $98 million

1979-80: $126 million

1980-81: $219 million

1981-82: $243 million

1982-83: $216 million

1983-84: $215 million

1984-85: $228 million

1985-86: $311 million

1986-87: $487 million

1987-88: $380 million

1988-89: $320 million

1989-90: $311 million

The city predicts that its 1990-91 construction value will be about $260 million.

Source: City of Long Beach.

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