A perfect storm of job losses, plunging oil prices, dramatic overbuilding and changes in a tax law blew through Texas in the 1980s, leaving San Antonio's commercial real estate market in shambles.
Though today's commercial market has slowed enough for people to start comparing it with the '80s, most in the industry say it's not as bad, and probably never will be.
“I've been to this rodeo before. I've seen the good times and the bad times. No one came to help us in the 1980s. Texas was the doormat,” developer Marty Wender said. “There is no comparison to where we are today and where we were.”
Perhaps no one remembers the '80s better than Wender, 62, who has been in San Antonio since 1969.
Wender kicked off growth on the far West Side with his Westover Hills development. Also, he had a hand in SeaWorld's 1988 arrival and in the creation of Texas 151 and the Hyatt Regency Hill Country Resort, among other projects.
But Wender also filed for Chapter 7 bankruptcy protection in 1991, and a judge wiped out his $67 million in debts.
“You either let tough times destroy you, or you get tougher,” he said. “Texas has been galvanized, it has become stronger because of adversity,” including the demise of the 1980s real estate market, he said.
Though many in the industry are optimistic, it's still too early for some people to say the market will steer clear of past conditions.
If the credit markets don't loosen, “it's going to be long and ugly,” said Harold Hunt, an economist with the Real Estate Center at Texas A&M University.
The market then and now
Here are some of the ways we're different than we were in the '80s.
Vacant office space in San Antonio hovered around 30 percent in the 1986, while at the end of 2008 office space was about 17 percent vacant, according to NAI REOC Partners, a local real estate company.
Retail space in 1986 was 19 percent vacant. At the end of 2008, it was 13 percent.
And there were about 200 apartment units permitted in 1988, compared with about 4,500 units permitted last year.
Foreclosures also played a more prominent role in the 1980s.
In 1988, 411 commercial properties together valued at more than $306 million were sold at the commercial auction in Bexar County, according to RexReport.com. In 2008, 174 foreclosed properties worth $90 million were sold, according to Foreclosure Listing Service.
“There does not appear to be an alarming number of postings among the quality commercial properties,” said Bonnie Brown of FLS.And at no time since 1970 has unemployment been higher than it was in the late 1980s. The 1986 state unemployment rate was 8.9 percent compared with a 6 percent unemployment rate in December 2008.
Job cuts and oil losses
Texas usually outpaces U.S. job growth. In 2008, Texas added 153,600 jobs compared with 2.6 million jobs lost in the U.S. But from 1985 to 1988, the opposite was true.
“I remember everybody leaving — project managers leaving, businesses closing, going to other states and looking for work,” said Maryanne Guido, CEO of Guido Brothers Construction Co. “Now all I see are people are coming here.”
San Antonio added 26,700 jobs in 2008, according to the Texas Workforce Commission.
In the '80s, the high job loss meant more vacant office and shopping space. Today, vacant space shouldn't increase too much because of the stable job numbers.
And growth in the military is one key to San Antonio's stability that hasn't always existed. The military is spending $2.1 billion here in base realignments, a move that will also add about 10,000 jobs to the area by 2012.
“San Antonio has its own stimulus package,” said R. Glen Ayers, an attorney with Langley & Banack
In the '80s, Texas was more dependent on the oil and gas industry than it is today. So when the price of oil plunged in the mid-1980s, the Texas economy and the real estate industry fell with it.
In 1986, a barrel of oil averaged just under $28, adjusted for inflation. Currently, it's around $40.
“We have a more diversified local and state economy as opposed to what we had in the '80s,” said Robert Hunt, senior vice president of commercial development with Embrey Partners Ltd. since 1988.
Overbuilt
Part of the real estate collapse in the 1980s was caused by a flurry of building in the early part of the decade.
“Because it was easy to get funding and cheap to get funding, there was a lot of overbuilding,” said Kim Gatley, senior vice president and director of research for NAI REOC.
A host of office buildings shot up, including One Riverwalk Place and Bank of America Plaza downtown and the Pyramid Building, Nowlin Tower and One International Centre on the North Side.
San Antonio is faring better today because it's not overbuilt, and the supply of space largely has met the demand, Gatley said.
In the '80s, San Antonio office rents dropped to nearly $10 per square foot per year — they're at more than $20 today — as owners slashed prices just to fill their space.
“Owners were forced to give away property,” Gatley said. “It was pretty crazy.”
And that overbuilding affected the city for years to come.
“It's not just like the switch gets flipped up or down and it changes,” Gatley said. “Basically, we went through the next 10 years without building a major office building.”
In addition to the military construction, today there also are school and government construction jobs in San Antonio, and there also may be future work as a result of the economic stimulus plan, none of which existed in the '80s.
“I don't think there was any city work, there was no school building going on to speak of,” said Tom Guido, president of Guido Brothers. “The private work had dried up, and there was no thrust for San Antonio to grow.”
Taxes and S&Ls
Aggressive lending and a change in the tax law also walloped the real estate business back then.
Savings and loan institutions often lent up to 100 percent of the cost of a project, and when the banks failed, so went the real estate.
“Today, everybody's better capitalized and a lot smarter,” said Tom Rohde, vice president of Rohde, Ottmers & Siegel Realty Services.
In passing the Tax Reform Act of 1986, President Ronald Reagan removed tax shelters for real estate investments. Many investors held real estate for its tax advantages and not its value, and this act caused them to unload their properties, thus sinking real estate values.
Today, the big financial concerns for the industry are apprehensive property buyers and properties at risk of losing value.
Some banks are beginning to devalue the commercial property they hold, Rohde said. If those properties become less valuable, then surrounding properties could see that drop as well.
“We have money on the sidelines that is waiting to get into the market, whereas in the '80s it seemed like there was no money ready to be put back into the market,” Gatley said.
So though the commercial market won't pick up until the cash starts flowing, Texas isn't expected to repeat the 1980s.
“I'm fairly optimistic that Texas and San Antonio are going to ride this out pretty well,” Robert Hunt said.
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