Boom in Dallas Turning to Bust : Big D Hurt by Oil Woes, Real Estate Market Glut

DALLAS —  The only thing left to do with the pit is fill it and forget it.

Once, it was the beginning of another proud 20-story building here. Now it is only a useless, gaping hole just north of downtown.

The pit is so big that the developers spent $22 million just to scoop it out in 1984. Then bad things started to happen--financing disappeared, the builders went belly-up, the pit sometimes filled with 10 feet of water. It became a symbol of Dallas’ unaccustomed hard times and was tagged with derisive names.

Last week, the task of ridding the city of the pit fell to the Dallas City Council, which voted to pay to have it filled in. That will take 32,000 dump-truck loads of dirt, and unless someone with a lot of free dirt comes to the rescue, the price tag will be an estimated $1 million.

Getting rid of symbols is a costly business.

“No one likes the idea of spending that kind of money to fill a hole,” said Councilwoman Lori Palmer, who called the pit an “exaggeration of the period of time when anything was possible.”

Big D has, in fact, dug itself into its own hole, one almost as deep as the infamous pit.

“The concern in Dallas is that we have to figure out a way to return to those thrilling days of yesteryear,” said Art Ruff, president of Vantage Companies, one of the largest builders in the nation.

Dallas banks are flailing about in their struggle for survival, after reporting staggering losses for 1986, much of it in bad real estate and energy loans. Bankruptcies are at a record high. Office towers go begging for tenants. Commercial foreclosures have topped $1 billion for the first time. Building starts are on a precipitous decline. The housing market is growing soft. Crime is up by almost 20%. And, if that’s not bad enough, the pride of the city--the Dallas Cowboys football team--embarrassed itself this year with a losing season, its first since 1964.

In Dallas, where football is more religion than sport, that is indeed a terrible reality to live with until next season.

Although hard times have become almost a cliche in Texas, Dallas long hoped that it would be immune. Houston, the state’s largest city, has been depressed for so long that bad feels normal--but Houston is also the oil capital, where energy is the soul of the city. It has been called the biggest mining town in the world.

A Tale of Two Worlds

Dallas is another story. Only a few hours’ drive up Interstate 45, it is a world apart from the gritty image of Houston. Dallas is button-down where Houston is open collar. Dallas is pinstripe insurance and banking to Houston’s roughnecks and risk takers. While the oil glut began emasculating Houston’s economy in 1982, Dallas surged on with a frenzy, with new construction cranes popping up in every direction despite warnings that the high rolling could not last.

Even now, no one in Dallas is predicting that the city’s problems will ever be as bad as Houston’s black hole. Dallas has a much more diverse economic base, from high-tech to the defense industry, and its unemployment rate is still a point below the national average. Dallas is reporting a population increase, while Houston and other cities are losing people. The Southland Corp., owner of the 7-Eleven chain, is bullish enough about Dallas that it is pushing, though more slowly, for a 22-million-square-foot business and residential complex.

But those cranes are no longer a fixture of the skyline. As everyone now realizes, it was only a matter of time before the ripple effect of the oil bust found its way here, and proof that the boom is over is particularly evident in the once-rich real estate market.

There are some predictions that it will take as much as six years to fill all the empty office space that went up willy-nilly in the last few years. The residential market is also flagging, with housing prices going down and the number of dwellings for sale increasing at a worrisome pace, worrisome, at least, for those trying to sell.

‘Too Much Speculation’

“Now is not the time to own real estate in Dallas,” said Ken Sandstad, the regional manager for Coldwell Banker commercial real estate services. “I think there was too much speculation, it grew too fast and people thought it would never end.”

In Dallas, the perception that things just aren’t going right comes from a number of areas, and not necessarily just from the economy. Here, where the Cowboys--”America’s Team”--are now losers, some of the problems have hard figures, but others are more symbolic.

Major crime activity last year was up 18.6%, the biggest increase for the city in the last decade. Police say the growth is the result of expanded drug activity and the early release of prisoners from the state’s overcrowded correctional institutions.

The police themselves are the object of harsh criticism from black community leaders. They have called for a congressional investigation into the way the Dallas police have handled--in their view, mishandled--cases dealing with blacks. The various facets of crime problems have become such an issue that two mayoral candidates have made it one of their major campaign themes for next April’s election.

Former Dallas Cowboy owner Clint Murchison, $200 million in debt because of failed investments, was forced to sell almost everything he owned to pay off creditors. He even had to part with his Cowboy memorabilia, including photos of former football stars Don Meredith and Bob Hayes.

Store Chains Merge

Sanger-Harris, a department store chain that was a Dallas institution, suffered the ignominy of being merged with the Foley’s chain, which is based, of all places, in Houston.

Southern Methodist University, Dallas’ showpiece center of learning, has become a symbol of outlawry because of blatant athletic recruiting violations.

LTV Corp., the Dallas-based industrial giant and parent company of the nation’s second-largest steelmaker, filed for bankruptcy last year, sending shock waves through the city. On a smaller scale, the Tanya Blair modeling agency, one of Dallas’ largest and most established, filed for bankruptcy last month, saying that as many as 60% of its clients could not pay up. There are hundreds of examples in between.

The city of Dallas is facing such a serious shortfall in revenue that it may need to impose hiring freezes.

And, as a final insult, the Texas Air Control Board said this month that the air pollution that forms a brown cloud over Dallas and neighboring Fort Worth is growing so fast that it could be as serious as the smog in Los Angeles within a few years.

Problems here appear to be magnified because the city did so well for so long. Still, Dallas is trying to put its best foot forward.

“There’s nothing wrong with Dallas. It’s just not as good as it was,” said Ted Enloe, head of the Dallas Partnership, which will spend $5 million over the next three years on economic development. “I don’t think there is a fear of being a Houston, but we are not immune to the national economy.”

Overbuilding a Key Problem

The vast overbuilding that has glutted the market is the city’s most persistent problem. The most recent estimate is that Dallas has 37.9 million square feet of vacant office space, only 5 million square feet less than Houston. A comparatively paltry 7.7 million square feet of space was under construction in January, down from 22.5 million square feet being built at the same time last year. Office construction is at its lowest point in the last nine years, and architectural firms are losing some of their top talent to other cities.

“I think it is going to be a slow recovery,” said Jim Crupi, head of the International Leadership Center, which examines local leadership and uses those findings as a barometer for the economic future. “Dallas was bound to feel the ripple effect of the oil system. A lot of real estate came off the fortunes of the oil industry. What you see is the ripple effect that always hits a service-based economy last.”

That ripple has swept through in other ways. Dallas banks’ recent quarterly reports have been anything but encouraging. Some examples:

--First City Bank, $401 million in losses for 1986.

--MCorp Bank, an $82.1-million loss.

--InterFirst Corp., losses of $326.5 million.

“Right now, the mood in Dallas is that we’ve got to ride this thing out,” Crupi said. “What I see happening is people positioning themselves for a turnaround. But we’re in for at least 18 months of slow development.”

For Some, It’s Too Late

Any turnaround--even one tomorrow--would be too late for some, however. Bankruptcies here are expected to reach an all-time high, and Walter Bratic, a senior manager in the Dallas office of Price Waterhouse, said that Dallas and Houston are almost equal in the number of businesses that have failed.

“It was a boom and bust economy,” Bratic said. “When the economy is overheated, it is very forgiving. When the down cycle comes, the economy is not as forgiving for these marginal businesses.

“It’s real hard to tell what’s going to happen in Dallas,” he said. “Everyone’s just watching.”