SoCalBUZZ
Covering Los Angeles, Orange County, San Diego and Inland Empire
LOS ANGELES
Impact of Job Cuts Varies by Region
The latest round of financial industry job
cuts—some 52,000 by Citigroup and a
combined nearly 4,000 by Goldman Sachs
and HSBC Bank—may hurt the Greater
LA area less than other regions of the
country. Orange County may already have
absorbed its worst blow. Those are some of
the conclusions by reports that assess the
impact of job losses on the office market
and comments by CRE professionals who
follow the Southern California region.
The Los Angeles
office market in general has suffered far
fewer layoffs than
New York City and
other more finance-related CBDs in
terms of office jobs
lost, according to a
report by Milwaukee-
based Robert W. New Century Financial HQ
Baird & Co. The report points out that the payroll cuts in the
financial services industry have not been
distributed evenly throughout the country but have been concentrated in markets with high concentrations of financial
services firms. In Southern California, that
has meant a severe blow to the Orange
County office market, where the once
high-flying subprime mortgage firms, like
the now-defunct New Century Financial
Corp., used to fill huge spaces that have
since been vacated.
Nelson Rising, president and CEO of
Los Angeles-based Maguire Properties, revisited the difference between the LA and
Orange County office markets recently
at the annual Nareit conference in San
Diego. Rising pointed out that occupancy
remains high in Downtown LA’s class A office space, which is not dependent on the
types of firms that undermined the Orange County market. And in remarks during the LA-based REIT’s recent earnings
conference call, Rising said that Maguire—which is the dominant owner of class
A space in the LA CBD—feels “quite comfortable” with its position with respect to
tenants in the financial services industry.
Rising, noting that
Maguire has fielded
many questions regarding its potential
exposure from tenants in the financial
service and insurance industries, said
that the REIT’s three largest banking tenants are Wells Fargo, with almost 400,000
square feet; Bank of America, which leases
190,000 square feet, and US Bank, occupying 162,000 square feet. All of those tenants “have weathered the financial storm
quite well,” the Maguire CEO said.
How the job cuts in the financial
services industry will ultimately affect
building values—if at all—will be very
“building-specific” and “dependent on
all kinds of factors and issues,” according to Robert Bach, chief economist and
senior vice president with Grubb & Ellis
Co.—Bob Howard, GlobeSt.com
ELECTION RESULTS LIFT
CLOUD OF UNCERTAINTY
All industries and groups are beginning
to weigh the reality of an Obama Administration, following the results of the US
presidential election in early November,
and the commercial real estate sector in
Southern California is no different.
John McDermott, senior vice president
of Sperry Van Ness’ Newport Beach office
and national director of office and industrial properties, says
that the completed
election “means at
least we have some certainty now.”
David Simard,
president of Los
Angeles-based Storm
Properties, agrees
with McDermott. “On McDermott
the local level, the
results of the election have lifted the
cloud of uncertainty that has shaded the
market for most of this year. Business decisions were delayed due to the uncertainty of the future.”
Simard continues that “a Democratic
administration in the White House and
in the US Congress means that a capital
gains tax increase is more likely. This rise
in gains taxes may further slow down economic activity and/or may force people to
act before there is change in legislation.”
It’s no surprise to that much of the
commercial real estate industry tended to
favor Republican candidate John McCain
over President-elect Barack Obama, based
in part on tax policies. Tax concerns were
also said to be the primary focus behind
two out of three respondents in a national
survey of more than 400 top CRE executives that said that McCain, if elected,
would likely have a more favorable impact
on the commercial real estate industry
