Moshe Pereg knew he was really in trouble when it came to be less than a week before Mother’s Day and hardly a customer stirred in his jewelry shop on South Beverly Drive. He sold no $32,000 diamond-encrusted emerald rings, and hardly any $100 trinkets.

“It used to be that rich people had the money, but now the recession has affected them, too,” Mr. Pereg said, adding that he had not experienced such a steep slowdown in his 48 years making and selling custom jewelry.

Even such a sanctified haunt of money, privilege, ostenstation and excess as Beverly Hills is not immune to the laws of economics. True, merchants say business has picked up a bit in recent weeks. But there are more vacant storefronts along Rodeo Drive than in many a year, office buildings on Wilshire Boulevard are begging for tenants and the hotels and restaurants are hurting. As a result, the City of Beverly Hills is struggling to make up a deficit of as much as $3 million in its current budget.

Of course, everything is relative. In Beverly Hills, recession can mean postponing a facelift. Fred Hayman, a retailer of luxury clothing and perfumes walked down Rodeo Drive with his German shepherd, Chumley, and pronounced the times tough. “What has changed so dramatically is spending habits,” he said. “The excesses of the 80’s had to end. The days when people bought 12 to 15 dresses are gone.”

Still, his specialty shop has no trouble selling beaded leotards by Josie Natori at $495 each.

The troubles began last year with the collapse of Drexel Burnham Lambert. The New York brokerage house had its high-flying junk bond operations in an office building on Rodeo Drive, and it was the city’s largest employer. It kept a block of 100 rooms across the street at the toney Regent Beverly Wilshire Hotel for the flocks of buyers who came to buy its bonds, and wined and dined them royally in nearby restaurants.

Now the office vacancy rate is 22 percent, with 1.6 million square feet of office space empty, nearly triple what it was two years ago. Gilbert Dembo, a broker who leases retail space, says vacancies on Rodeo Drive are about 15 percent. All of this, says William C. Boyd, executive vice president of the Beverly Hills Chamber of Commerce, has persuaded the local business owners that they can no longer sit back and expect the glittery name to attract new businesses.

For the first time, Beverly Hills began an economic development drive. The chamber president and the former mayor recently toured Asia, trying to lure corporate headquarters.

What is not generally recognized is that Beverly Hills, a 5.7-square-mile enclave of luxury about 7 miles west of downtown Los Angeles with a population of 32,000, is more than home to movie celebrities and the fabulously wealthy. More than 76,000 people work in the city, which has the corporate headquarters of the Hilton Hotels Corporation and Litton Industries, among others. Its tax base comes mainly from business license taxes, sales taxes and other business levies. Drexel alone paid about $600,000 a year.

So the business downturn has threatened the city’s extravagant public services, considered the best in California. It recently opened a $120 million civic center by the architect Charles Moore, which cost nearly quadruple the original estimate. With revenue from sales, hotel and business taxes well below expectations, officials at City Hall are going through the process of trying to cut services or raise taxes. They anticipate a shortfall of $5 million for the budget year that begins July 1, in addition to the $3 million deficit this year.

Meanwhile the value of building permits is down by about a quarter but the number of projects is about the same, suggesting that even the rich are remodeling rather than tearing down and building new houses as had been common practice.

But none of this suggests that Beverly Hills has lost its luster. Barney’s, the New York clothier, is forging ahead with plans to open a 100,000-square-foot store on Wilshire Boulevard. And Jeff Hyland, a real estate broker who caters to the rich, says showings of luxury homes have doubled since the end of the Persian Gulf war.

The new Mayor, Vicki Reynolds, says, “We are just going to have to ride the tide of this.”

And ride the tide they did. {Source}