It is the best of times and the worst of times for the real estate industry in America's second largest city, where brokers, investors and owners are having a Dickens of a time trying to gauge the direction of the market.

"There is a dichotomy in the Los Angeles area," explains Howard Sadowsky, executive vice president and regional manager of the Los Angeles office of Julien J. Studley, Inc. "Downtown is a disaster, one of the worst markets, a place where deals are being done for breakeven at best by landlords. But 17 miles away in Santa Monica, you're at the opposite end of the spectrum. It is one of the best markets, with space at $32 per sq. ft. and low vacancy."

The real estate market in the City of Angels is as diverse as the population; the Los Angeles story is not a tale of two cities but one of a half dozen. "To assess the health of the Los Angles office market is really to assess the health of each of these submarkets," says Cliff Goldstein, general partner in J.H. Snyder and chairman of the Los Angeles Commercial Realty Group. "To the savvy investor, owner or lender, each submarket is, in important respects, separate and distinct."

The area's long range potential is what is drawing investor interest today. "Investors perceive a market timing opportunity," explains Philip Powers, executive vice president at Koeppel Tener Real Estate Services in Los Angeles. "The result has been an increase in liquidity over the last year, particularly in equity through the investment funds and other private sources of capital. Traditional permanent lenders have also re-entered the California market."

"This is the best market since the late 1970s for investors, providing the best return in 15 years," says Rand Sperry, founding partner and CFO of Sperry Van Ness, a partnership specializing in investment real estate. "But it's important to clarify: If you bought a building six or seven years ago, it's under performing; if you bought it today, you're getting good performance."

In certain areas, owners feel confident enough about the future of the market that they are rejecting deals they would have accepted 18 months ago. "We presented an offer to an insurance company on a six-story office building which we thought was fair, and they said if you want to double it, we'll talk about it," says Rick Gold, executive vice president at Capital Commercial Real Estate, a realty firm based in Encino. "Their rationale is that they think rents are going up, and they think they will benefit from it."

Even so, the cockiness that used to be uniquely Los Angeles has receded a bit thanks to the Northridge earthquake of 1994 that not only sent tremors into the real estate market but aftershocks into the financial sector as well. Today, the Southern California economy can be compared to a family car: It's still running, but sputtering badly.

Despite this, the Central Business District, considered the weakest of the submarkets for office space, is improving thanks to government transactions that have kept the market alive.

"There are definitely signs of strength in some of the major urban centers of Greater Los Angeles," says Jeffrey Woolf, president of Lee & Associates in Sherman Oaks. "Vacancies are down, rents are stable with fewer concessions than a year or so ago and there is increasing -- but not tremendous -- activity by developers and builders."

"After a deluge of new space hit the market in 1989-90, the Westside market is starting to 'dry out,'" says Kathryn S. Schloessman, senior vice president/marketing director of the Western Division of CB Commercial Real Estate Group, Inc. "Vacancy rates have been dropping, and rents have stabilized and, in fact, are beginning to inch upward. The window of opportunity for tenants is still open but is beginning to close."

Despite the good news, there have been a number of signs of continuing weakness. Ernest Johnson, Western Division vice president of PM Realty Group, isn't too optimistic about the future of the CBD. "Corporations continue to downsize," he explains. "The South Bay market will continue to grow in popularity and demand. Large blocks of quality product space are available. That space is located in some of the most desirable areas in terms of quality of life."

The picture on the Los Angeles region's industrial side is much sharper. According to Grubb & Ellis, the vacancy rate in the South Bay area fell a full percentage point during the second quarter while available inventory is at its lowest level since 1989; speculative building is considered likely by the end of the year.

"Overall, the industrial market is faring very well," says Anthony J. Manos, vice president/marketing and leasing for the Watson Land Company, one of the largest developers of industrial centers in Los Angeles County. "Vacancies are falling into single digits across the board while at the same time net effective rental rates have been rising -- about 10% to 15% throughout the region."

Accordingly, the mid-counties market is the tightest one in the Los Angeles Basin with a vacancy rate of 5.8%. "In this market, REITs and pension fund advisers are active on the acquisition front for Class-A industrial projects," notes Timur Tecimer, vice president of the Trammell Crow Co. in Los Angeles.

The real estate picture for apartments becomes somewhat blurred. Multifamily properties in the Los Angeles area have been selling across the board at strong cap rates, brokers say, with most of the deals going on providing double-digit cash flow. "This may change in the near future," says Raffi Krikorian, regional managing partner in Sperry Van Ness' Encino office, "because we still have 4,000 to 5,000 apartment units that have not been renovated following last year's devastating Northridge earthquake."

On the retail side, an increase in activity is being reported. One of most eagerly anticipated events is the reopening of the earthquake-affected Northridge Fashion Center. The Broadway and Sears, two of the anchor stores, redesigned as innovative, prototype department stores, opened late last year. "The overwhelming reaction to the opening of these two department stores shows that shoppers are eager to return to Northridge Fashion Center," says David S. Gruber, president of MEPC.

Assessing the health of the Los Angeles market is best described as diagnosing depending where you are sitting. There are some winners, there are some losers. "In general, we have hit the proverbial bottom and are bouncing back," contends Cliff Goldstein of J. H. Snyder. "It's clear the worst is behind us and optimism about the future again abounds."