Sour Real Estate Markets Could Worsen Texas Financial Crisis

By Thomas C. Hayes, Ny Times | THE JOURNAL RECORD, March 25, 1988 | Go to article overview

Sour Real Estate Markets Could Worsen Texas Financial Crisis


Thomas C. Hayes, Ny Times, THE JOURNAL RECORD


DALLAS - Anyone who thinks that the two-year-old financial crisis in Texas could not get much worse needs to take another look at the real estate markets in the state's biggest cities.

Property foreclosures and past-due mortgage payments are still rising at alarming rates in the nation's third-most populous state. If recent trends continue, the crop of buildings or raw land picked up from defaulted loans could nearly double, to about $20 billion this year, with savings institutions accounting for about $15 billion of that amount.

At the end of 1987, Dallas and Houston had a total of 82 million square feet of vacant office space. That is more than enough to house all the office workers in Atlanta, the nation's 10th-largest metropolitan area.

The situation is especially dire in Houston, where 31.8 percent of the office space is now vacant, the highest percentage in the country, according to the Office Network, a national market-research firm based in Houston. Given this glut, the Houston metropolitan area is unlikely to require much new office space until the next century.

In Dallas, where 29.1 percent of existing space is empty, the situation is only slightly better. Businesses filled an additional four million square feet last year. At that rate, it would take eight years to occupy what already exists. But many buildings are either so poorly situated or so shoddily built that they will eventually be razed, many people in the real estate industry say.

The residential market is not nearly so depressed. Still, the Houston area leads the nation in mortgage defaults, and average home prices in Houston and Dallas declined by more than 15 percent last year.

With the overall markets of other big Texas cities like Austin, San Antonio and Fort Worth also in shambles, many analysts and executives believe that the heavy real estate losses suffered by Texas banks and savings institutions will continue to mount well into 1989 and perhaps beyond.

``We've got a long way to go,'' said Richard W. Fisher, a Dallas investment adviser who was a high-ranking Treasury official in the Carter administration.

The First RepublicBank Corp. became the latest casualty last week, when real estate-related losses forced that bank holding company, the state's largest, to seek $1 billion in government aid to quell a runoff in deposits. Its past-due real estate loans soared to $2.1 billion by the end of last year, up from $212.4 million at the end of 1986.

In the wake of the state's building binge earlier in this decade, along with the economic problems resulting from a steep drop in oil prices, all but one of the seven largest banks in Texas have been forced to seek government bailouts or mergers with out-of-state institutions. Of the state's 281 savings institutions, 104 are technically insolvent, largely because of the weak real-estate sector.

Without a huge government bailout - one that could cost at least $25 billion - many experts are pessimistic that the spreading debacle can be contained anytime soon.

Fisher said he feared that regulators at the Federal Savings and Loan Insurance Corp. and the Federal Deposit Insurance Corp. are on the verge of becoming overwhelmed by the billions of dollars' worth of foreclosed property coming under their control in the Southwest. His big concern is that the agencies will wait too long before deciding to sell large amounts of property in a short period, taking whatever price they can get and further depressing the market. …

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