Posted 2:28 am Thursday, October 29, 2009
Bottom Falls Out Of Oil, Real Estate
By BRIAN PEARSON
Business Editor
Henry Bell got a firsthand look at the economic spiral that Tyler fell into in the late 1980s.
Business Editor
Henry Bell got a firsthand look at the economic spiral that Tyler fell into in the late 1980s.
Investors putting all their eggs into two baskets -- real estate and oil and gas -- early in the decade found themselves trying to stay out of bankruptcy and foreclosure only a few years later.
A decade that opened with oil near $35 a barrel saw prices crash to below $10 in 1986.
During the 1980s, Bell worked at a Tyler bank and witnessed the community go from riches to rags.
The early 1980s oil boom in East Texas had sparked an investment frenzy in the petroleum industry and real estate, Bell said. And banks benefited as well, he said.
"The banks had grown so fast because of what happened in the early part of the 1980s," Bell said. "Everything was betting on the growth continuing in real estate and gas. Banks took a lot more risks than they normally would.
"You saw people investing in real estate. People like doctors were getting into oil and real estate.
"Everybody just got greedy in the 1980s. Everybody just jumped in and got into oil and gas and real estate when they had no business doing that."
A city living by oil since the 1930s, thanks to large oil reserves around it, started to die from oil in the 1980s as prices crashed into the single-digit range.
Not only was the local petroleum industry devastated, those who had invested in it -- as well as the real estate explosion it had caused -- suddenly found themselves in a precarious financial situation.
"The real estate market was overbuilt," Bell said. "People were holding real estate property -- such as apartment complexes -- with nobody to fill them. Oil and gas loans didn't go through."
Unemployment soared to beyond 10 percent and banks laid off employees, sold out to big-city banks or just went belly up, he said.
Bell said his bank's marketing department went from 10 employees to one: him. The advertising budget dropped to $10,000 from $750,000.
"Banks were having to lay off people left and right," he said.
Mark Whatley, a Realtor for Burns Commercial Properties, arrived in Tyler in 1985 and set up a computer database company called Intranet.
Had he been in commercial real estate at the time, his work might have focused more on the bleak side of the industry.
"The real estate market was really getting hammered," said Whatley, an Athens native who moved here from Corsicana. "We had a lot of commercial foreclosures."
Top-notch office properties and shopping-center projects were the hardest hit, he said. Centers such as Times Square and Grande Plaza were among them.
"Almost all of them wound up going through bankruptcy or foreclosure," Whatley said.
Taylor Burns of Burns Commercial Properties in Tyler said the late 1980s represented the "perfect storm" of economic misery, particularly in commercial real estate.
"It was certainly the most brutal business period I've ever been through by far," Burns said. "This deal today is nothing compared to that."
He said commercial real estate values dropped an average of 60 percent in Tyler.
The FDIC engaged in a bank-closing frenzy, and when short-term loan notes from those banks came due, the FDIC demanded payment in full, Burns said.
"You could not get a banker to talk to you about a loan on commercial real estate," he said. "The FDIC had all the assets. You couldn't refinance. The FDIC then foreclosed, a lot of times on people who were making their payments and had done nothing wrong."
The foreclosures destroyed many an equity, he said, and then the opportunists moved in to snatch up properties at FDIC auctions.
"They were all bottom feeders looking for something cheap," he said. "That affected the value of all commercial real estate in the area because those sales prices were so low.
"It lasted about seven years before it started getting better. It was a very tough time. I stared at the ceiling for seven years."
Bell said the late 1980s economic devastation quickly hit small businesses.
"There were a lot of places that couldn't make it," he said. "Doctors were taking bankruptcy because they couldn't pay their debt.
"It was not a real pretty picture back then. Part of what we learned from that time was that we were way too dependent on the oil and gas industry and needed to diversify."
That realization led to the creation of the Tyler Economic Development Council, formed in 1989 as a separate entity from the Tyler Area Chamber of Commerce.
The council has since worked to diversify in myriad areas, with an intense focus on the stable health care industry, Bell said. That diversity softened the blow the nationwide recession has had on Tyler, he said.
"Our economy is so diverse and pieces of it are doing so well, like health industry," he said.
As for Bell, he fled the banking industry in 1989 and took a job at the Tyler Chamber of Commerce, where he serves today as chief operating officer.
Bell said that when he took the job, his intention was to use it as a bridge to something else.
That was 20 years ago.
"I'm still looking for that real job," Bell joked.
"I'm still looking for that real job," Bell joked.
