With the stock market vacillating and signs the economy is slowing down, many investors are looking to bricks and mortar as a safe haven. And the Los Angeles area in general and Westside in particular are viewed as among the choicest investment markets in the country.

After all, rents and occupancy rates have been moving up in the L.A. Basin, and relatively little new office, industrial or apartment space is under construction. Meanwhile, L.A.-area rents remain cheaper than in places such as San Francisco and New York City, meaning there may still be plenty of local upside potential.

Countering the strong fundamentals, however, are rising interest rates and some doubts that L.A.'s strong rental growth will continue. There's also a lack of sure-fire moneymakers on the block at this point in the cycle and some investors are just getting pickier.

All of this makes for an interesting investment climate, both for the entrepreneurs and for the dominant investors at the upper end of the spectrum pension funds and the advisory firms that invest on their behalf.

"There are two contradictory forces working. On the one hand, you have the fact that, as mortgage money rises in cost, it's harder and harder to make a project feasible," said Allan Kotin, principal at real estate consulting firm PCR/Kotin. "On the other hand, because of fears about the stock market going south and the perception of L.A. as one of the healthier regional economies, equity people are more interested in L.A. Which way it will balance out? I don't know."

New market realities

Pension funds are the latest players to dominate the big pool of real estate investors, which has evolved amid changes in the economic climate and tax laws.

Up until the 1986 tax reform act, syndicates that sold shares in limited partnerships to wealthy individuals drove the real estate investment market. Life insurance companies also played a big role until they were forced by regulators to divest much of their holdings starting in 1991. The 1980s also saw the emergence of cash-flush thrifts, followed by the Japanese, who snapped up trophy properties all around Los Angeles and throughout the country.

Then came the real estate recession of the early 1990s and the rise of real estate investment trusts and Wall Street opportunity funds, which capitalized on the growth opportunities. Richard Ziman's Arden Realty was especially adept at snapping up prime office buildings at bargain-basement prices.

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