Steve Julian
April 21, 2009
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KPCC's business analyst Mark Lacter looks at whether the yearlong impasse between the Screen Actors Guild and studios hurt the economy; Mark also discusses the troubles that office building landlords are facing.
Steve Julian: On Tuesdays we talk with business analyst Mark Lacter. Mark, we reported yesterday on an agreement between the Screen Actors Guild and movie and TV producers. Did the year-long impasse hurt the economy?
Mark Lacter: Not a whole lot, Steve, as it turns out. When the actors and the studios first began negotiating about a year ago, there was concern, of course, about a possible strike – and that led to a revamping of production schedules, especially on the movie side.
Julian: Well, they'd just come out of that writers strike, too.
Lacter: That's right, and that clearly disrupted production, and so the plan was to finish up everything before the contract expired at the end of June. But then it became clear that the SAG membership wasn't likely to approve a strike authorization vote – so a lot of Hollywood just went ahead with its business.
The only areas that really saw any serious disruption were large movie projects being prepared by the studios. Actually, if you look at the March employment numbers for Los Angeles County, the entertainment category is holding up pretty well. Between February and March, 9,300 Hollywood jobs were added to the rolls.
Julian: Added.
Lacter: That's far higher growth than most local industries. Most local industries would
love that kind of growth.
Julian: Yeah, we don't hear "added" very often. But, you know, that is if you can track it.
Lacter: That's true. Hollywood employment is notoriously hard to keep tabs on. So many folks work on short-term contracts and part-time. There's also no question that the below-the-line jobs have been lost because of a sharp drop in location shooting in L.A. – you know, those tax incentives in other states and cities are really taking their toll.
But the employment numbers, even if they're a little off, are pretty convincing. Of course, there is still unfinished business – the full SAG membership has to ratify the new contract. That seems fairly likely because everybody has gotten so tired of this, but the guild is divided between the moderates and the hard-liners, so you never know.
Julian: And meanwhile, office buildings are getting emptier.
Lacter: Yeah, and rents are getting cheaper. And this is what happens in the last stages of a deep recession, and it's created some problems for the owners of office buildings, shopping centers, hotels, warehouses – really all kinds of commercial property.
Last week came the big Chapter 11 bankruptcy filing by General Growth Properties, that owns a bunch of shopping malls in Southern California, but that's just a sample of what may be in store. Landlords in the Inland Valley, just to give you an idea, Steve, are so desperate that they are offering a year's free rent to tenants.
Julian: (laughs) How's L.A. County's vacancy rate?
Lacter: It's around 14 percent in the first quarter. That's up a few percentage points from a year earlier. Orange County has a vacancy rate of 18 percent – lots of financial firms down there, and of course they've taken a hit.
You know, the problem, in a nutshell, is that businesses are consolidating their offices, retailers are closing stores, hotels are half empty. So the owners of these properties don't have enough money coming in to handle their financial obligations. Remember that developers took on a lot of debt during the real estate boom when credit was available to, you know, basically anyone who had a pulse.
Julian: (laughs) Are lenders willing to negotiate new terms?
Lacter: Not really, and that explain why there's so many commercial real estate properties in L.A. that have either been foreclosed or have been running into problems. So we will see more defaults and bankruptcy filings, and that
could result in more buildings changing hands.
And you know, empty offices and stores might be around a while – keep in mind that it takes quite some time after the recession ends for companies to feel comfortable about hiring the number of people that would require more space. So we could easily be talking 2011, 2012 – not great news if you want to put up another office building or, more important, if you're looking for work.
Julian: All right, Mark. Thank you.
Lacter: Thanks, Steve.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at
LAObserved.com.
