"I don't think we'll ever see another appreciating commercial market like we had in 1981 and 1982," he said. "There are no exact percentages, but some properties increased in value more than 200 percent between the late 1970s and 1982. And the same amount of depreciation can be found in the decline of property values after 1982 and 1983."
The boom started in the late 1970s with an explosion of construction, said Gerald Gamble, president of Gerald L. Gamble Co. The amount of office space in the Oklahoma City market doubled between 1978 and 1983.
Even if the oil business had remained healthy, there would have been an incredible oversupply of office space, said Charles Wiggin, president of Wiggin Properties Inc. With the decline of the oil business, demand decreased as the share of office space leased by oil and gas related businesses dropped from 49 percent in 1982 to 24 percent in 1987. Now demand is starting to catch up with supply, said Wiggin.
Employment in oil- and gas-related business dropped 62 percent from 30,400 in 1982 to 11,600 in 1987 for the Oklahoma City metropolitan area, according to Craig Knutson, staff economist for Southwestern Bell Telephone.
In October 1979, interest rates were high and the national prime was 20 percent, said Hugh Gilliland, senior vice president for commercial loans for Liberty Mortgage Co. Under those circumstances, real estate deals did not make sense in many areas of the country except the oil patch, where 15 percent and 20 percent returns were possible.
"We had a strong economy here while no one else did," said Gilliland.
Other areas of the country were in a recession, so capital was brought in and often funneled through local banks like Penn Square Bank, said Gamble.
"When the depreciation on investment tax credits was reduced from 30 years to 15 years and the capital gains tax rate was cut from 28 percent to 20 percent, it created an environment in which real estate was the darling investment," said Gamble.
The savings and loan associations fueled overbuilding by financing projects that probably should not have been built, said Gilliland. The savings and loan industry was underwater in the early 1980s because it was paying 13 percent to 15 percent rates on certificates of deposit from a fixed rate portfolio yielding 7 percent to 9 percent on home loans.
"In the fight for survival, they got into the commercial loan market," said Gilliland. "Service corporations originated loans for multiple savings and loans, charging seven points up front. People knew it was risky, but they had nothing to lose."
When Penn Square Bank failed in July 1982, the boom was still going on, said Gamble. Then there was a precipitous drop from 1983 to 1988 and vacancies in apartment and office space soared to more than 30 percent.
"The decline of the real estate market, when you chart it, really didn't start any major fall until after 1983," said Hoyt. …