Riots clobber retail lease rates in South Central, delay rebuilding.

Lease rates for retail space in South Central Los Angeles have fallen so steeply since the April riot that many landlords, even those fully insured, are reluctant to reconstruct damaged or destroyed buildings, local industry experts reported.

That situation has created a strong buyers' market for those looking to pick up South Central retail property on the cheap.

Industry experts said monthly retail lease rates in South Central have actually been in decline for the past 18 months, falling about 30 percent in that time. But that decline has quickened since the April riot, bringing monthly retail rates to roughly $1 a square foot.

Rates were in the $1.50-a-foot range 18 months ago, sources said.

Many South Central landlords were fully insured, and the insurance money they have received as compensation for riot-related losses are typically adequate to cover the cost of rebuilding. But South Central lease rates have fallen so low that they are insufficient to cover the landlords' mortgage payments, not to mention property and business taxes, said the experts.

"What these low rates will do is produce a negative cash flow for the owners," said David Adams, president of Morgan Adams Inc., a Los Angeles-based development company. "They will be paying more in payments than they will be collecting in rent payments."

About 200 retail businesses in South Central were destroyed or damaged in the April uprising. But exactly how many of those businesses have been rebuilt, or are in the process of reconstruction, is uncertain.

Initially, fears were limited to uninsured or under-insured retail landlords not being able to rebuild. Several programs to help the uninsured have become available since the riot, however.

But concern is now spreading that even many of those fully insured might never rebuild.

Officials from Rebuild L.A., the private-public organization charged with coordinating the inner-city rebuilding efforts, did not return phone calls for comment on incentive plans for retail landlords with insurance.

A spokeswoman for Los Angeles City Councilman Mark Ridley-Thomas, whose district includes much of the South Central area, said she had not specifically heard of retail landlords who are reluctant to rebuild because of low lease rates.

"But I know that there are a variety of reasons people have not rebuilt, and one reason is that it is becoming a land-use question more than anything else," said the spokeswoman, who did not want to be named. "People are thinking it might be better to go with one or two big retail places, rather than the strip malls that might have 10 businesses."

She also said, since the riot, planning officials have been putting more limits -- called "conditional-use restrictions" - on what types of retail businesses can operate in South Central.

Those restrictions, she said, have limited the number of available tenants. Since the riot, she said, it is now harder to open a liquor store or gun shop, for instance, in South Central.

Private-sector developer Adams noted that he knows of three retail landlords -- two in South Central -- who may not rebuild because post-riot rents have declined so much.

"The building is worth less now than what they owe on it," Adams explained. "So they are thinking, 'What's the point? I can't make any money on this.'"

The situation has created a buyers' market for retail-zoned land in South Central, he continued. "There's a terrific opportunity to buy land right now in South Central."

"Even though the current owners may not be interested in rebuilding, there are plenty of other people out there who are interested in buying the land at the lower rates that are now available out there," he said.

Dick Carter, a senior retail analyst at Beitler Commercial Realty Services in Los Angeles, said another issue for retail landlords is whether there are available tenants for the small shops that were destroyed or damaged during the riot.

"There seems to be a feeling that it might be better to go with the bigger stores, rather than the mom-and-pop places," Carter said.

"So some builders might be thinking of that, rather than rebuilding the smaller shops."

The spokeswoman for Councilman Ridley-Thomas said retail landlords may be delaying a decision on rebuilding because areas could eventually be designated enterprise zones, which might further restrict the types of acceptable businesses.

But the single biggest reason some landlords have not rebuilt, the spokeswoman said, is that planning officials are moving away from the concept of strip malls containing several small retail shops. Instead, city planners, under conditional-use regulations, are trying to attract large businesses, like supermarkets, that would employ many more people than a collection of small shops.

"Another thing you have to realize is that we need grocery stores in South Central," said the spokeswoman. I don't know if we need another liquor store or a large colection of dress shops."