Low vacancy rates usually mean a green light for developers to begin building anew, but as the recent collapse of a major deal in Burbank illustrates, that's starting to change.

The real estate market has nowhere to go but down, some experts are concluding, and developers and capital partners don't want to be caught holding the bag when it does.

Burbank's office vacancy rate is only 5 percent, normally a level at which developers are anxious to start building. But lenders are growing increasingly cautious, fearing a downturn is on the way. Those newly emerging dynamics are what led Regent Properties to quash plans to develop a $100 million mixed-use project in the city's downtown core.

Real estate experts say lenders and other capital sources no longer consider vacancy rates alone when assessing development plans.

"In every past cycle, when vacancies got below a certain level, that was the stimulus to do more development," said Jim Shaw, managing director for Cohen Financial, a real estate investment bank. "But success always led to competition, which always led to a collapse in the market, so the capital markets are trying to be a little more disciplined."

On April 24, Regent notified Burbank city officials that it had decided to terminate its development agreement, after months of attempts to redesign the project to meet the changes in Burbank's landscape since Regent inked the development deal about two years ago.

"We will begin immediately looking for a new developer for the project," said Ruth Davidson-Guerra, project manager for the site, bounded by Olive Avenue, San Fernando Boulevard, Angeleno Avenue and Third Street. "I believe we'll try to aim for some sort of mixed-use project."

Unraveling of a deal

About two years ago, Regent acquired the three-acre site with plans to construct a complex with 200,000 square feet of office space, a retail component and a hotel. The company had been close to a deal with Marriott International to build a 300-room hotel, and Burbank officials said Marriott is still interested in the site. But the outlook for the other components of the project had been unraveling for some time.

Although the office vacancy levels in Burbank are very low, the demand for that type of space is expected to taper off, and several other projects announced or begun since Regent acquired the site have further dampened the outlook in that sector.

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