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Real estate rebound.

Real Estate Rebound

REAL ESTATE VALUES IN the state's three largest cities are riding another classic Alaska boom-bust wave. While the market is rebounding nicely after being smothered by the biggest wave ever to hit these shores, its future remains uncertain.

Property assessments in Anchorage, Fairbanks and Juneau are at or close to their highest levels since 1986, when faltering world oil prices tossed Alaska's real estate market into chaos. Sales for certain types of real estate are brisk and industry observes are saying a degree of confidence has returned to the marketplace.

Health of the state's major industries will determine future trends. Among positive indicators noted by real estate professionals is the more than $1 billion worth of maintenance work scheduled for North Slope oil fields and the trans-Alaska pipeline over the next few years. Work at Prudhoe Bay alone is expected to generate 1,500 construction jobs.

Also, the prospect for construction of the $11 billion Trans-Alaska Gas System to carry North Slope gas to Pacific Rim markets is gaining momentum. TAGS would generate thousands of construction jobs and pump hundreds of millions of dollars into the state treasury annually. Additionally, there remains a ray of hope Congress will open the Arctic National Wildlife Refuge to oil exploration and development.

Regional economies offer still more arguments for improving real estate markets. The air cargo industry is booming in Anchorage. Military families are moving into Fairbanks. Juneau has gold mining fever. And other Alaska industries, such as tourism and fishing, are healthy.

So, the experts agree Alaskans can expect slow but steady growth over the next two to three years. But what lies beyond for Alaska's economy and real estate market could be troublesome.

The supergiant Prudhoe Bay oil field, which has fueled the economy for more than a decade, will be well into its decline. With nothing of its size to replace it, Alaska's oil-dependent economy could be in deep trouble by the end of the decade as state revenues continue to dwindle. Even if ANWR were opened to exploration, and commercial quantities of oil were discovered, it would still be a dozen years before any field could be brought into production because of the tremendous lead times required to clear government regulatory hurdles.

"The next two to three years look good, but beyond it looks pretty foggy. At that point the lenders and the investors get a little skittish, because the future is uncertain," says Ronald Bunn of Mundy-Day-Bunn, an Anchorage-based firm specializing in real estate analysis.

"I don't see any single area that will create an impetus in employment and office demand. It will come from a variety of areas - the gas line, attention to ANWR, the continuing rework projects at Prudhoe," he adds.

While it is doubtful property values will ever reach their earlier levels, real estate markets in Anchorage, Fairbanks and Juneau were well on their way to recovering from the 1986 recession by the end of the first quarter of 1990.

ANCHORAGE. For the first time since 1986, values of real property - land and improvements but not personal property - in Anchorage showed a gain. While still 47 percent below the 1986 assessment of $13.9 billion, the $7.3 billion tax base for 1990 represents a 1.5 percent increase over the previous year.

"We can see a turn," says Steve Van Sant, property assessor for the Municipality of Anchorage. He reports 2,000 residential sales were recorded last year.

"It's certainly not the values of the early 1980s, which to me were abnormal. You don't have a lot of speculators out there. A lot got busted, so people are more cautious about going out there and getting properties. Caution is the word," he explains.

As in other areas of the state, shoppers in the real estate market in Alaska's largest city first gravitated to higher quality residential and commercial properties made affordable by lower prices.

According to Dale Jackson of TRF Brayton Commercial Real Estate, the office space market hit bottom in about June and July of 1989. "That's when demand (for office space) started increasing and rates started going upward," he says. "By November 1989 demand by purchasers for commercial real estate picked up, and that was another real encouraging thing.

"The bulk of the purchases are from investors - they feel Anchorage is coming back. Some businessmen can now afford to buy their own buildings, because values are depreciated. Now is the time to buy. If you haven't bought by August 1, you've missed the bargains."

Reported in the results of a commercial market survey conducted by Mundy-Day-Bunn: "The treshold of market recovery is now in the immediate past." Bunn points out that in March overall office market occupancy for Anchorage was 86.2 percent, with Class A space exceeding 90 percent for the first time since 1986. Demand for Class B and Class C office space also picked up.

In another study, 76 percent of Anchorage realtors who responded to a survey in October said their business had improved in the past year. Seventy-two percent also reported they expected 1990 to be better than last year. All categories of real estate were expected to increase in value within five years.

In the case of single-family homes, including zero-lot-line dwellings, market recovery already was well under way by the first of the year. About 800 homes were available for sale at the start of 1990, compared to nearly 2,600 in mid-summer 1986, according to data compiled by Multiple Listing Service. The average asking price for a single-family home increased from about $112,000 at the low point in January 1989 to about $130,000 a year later. Homes also are selling faster.

The Anchorage rental market also tightened significantly by the end of 1989, especially for the higher quality units. Shorett & Riely, real estate appraisers and consultants, reported 4.6 percent vacancy rate at the end of the year, the lowest overall rate since mid-year 1982.

Niel Thomas, associate broker for Fortune Properties Inc., says market reaction to both the recession and recovery were predictable. When the decline came, people began leaving the state, producing a "bulge" of residential property in the market. As prices began to fall, Thomas recalls that sellers at first found it difficult to sell at the devalued prices. "Eventually, so many people left town that instead of private people selling, we had (financial) institutions selling," he says.

The average asking price for an Anchorage home hit bottom in the spring of 1989, but MLS statistics show the number of available homes on the market began evaporating before then. Attracted by inexpensive housing compared to many areas on the West Coast, retired people and others moving to Anchorage looking for a deal can be credited for at least some of the rebound, Thomas says.

"People started moving up the West Coast as prices began to skyrocket in Southern California. Retirees came up here and could acquire property at 25 percent less," he explains.

FAIRBANKS. Like Anchorage, Fairbanks was hit hard by the three-year economic recession. Although its pace of recovery is slower than that of Anchorage and Juneau, its real estate market is on the upswing, fueled by a military buildup and maintenance work on the North Slope and trans-Alaska pipeline.

The total assessed value of the North Star Borough's 1990 property tax roll is down about 4 percent from last year. But the assessments were based on property values last year, when the Fairbanks economy bottomed out, according to Karl McManus, deputy property assessor for the borough.

"With the signs we're seeing now, we possibly could have increases of up to 10 percent (in the tax roll) next year," he says.

Single-family homes have been leading the real estate market in Fairbanks, with property values increasing 4 to 5 percent in 1989 and another 8 to 10 percent during the first three months of 1990, says Joe Faulhaber of Coldwell Banker Great Land Realty.

"Most houses are selling for over appraisal - single-family homes in the $70,000 to $130,000 range," Faulhaber says. "There's very little product available. Even if we see half the appreciation for the rest of the year, there probably will be a small amount of new construction."

On the other hand, Faulhaber notes a great deal of disparity in condominiums. "The quality condo projects are doing better than others. But we have a strong rental market where there are very few vacancies. I look for price increases over the summer," he adds.

Jim Desmen of Coldwell says demand for Class A office space in Fairbanks is high. "In the last few months, we've seen commercial space starting to fill up pretty well. It should be real tight this summer. A lot of people are moving out of Class C to Class B. We've got a lot of military activity here. And there's a lot of talk about the pipeline. Also, tourism and mining are on the upswing. All these factors are contributing to the overall outlook," he explains.

According to Desmen, commercial building sales are up as well. "Quite a few commercial buildings have sold," he says. "I've sold five strip malls in the past year. There's been quite a turnover in inventory. I believe 1990 is going to be quite a year for sales in commercial. For the most part, brokers are very busy."

In light of the last recession, however, people in Fairbanks are concerned about the future. "I think people are cautiously optimistic. Everyone wants to see a boom come. But they understand the ramifications of a boom-bust economy. People are trying to avoid it," Desman says.

JUNEAU. Anchored by state government and a surge in mining activity, Juneau's real estate market appears to have hit bottom about 20 months ago. "And it has been upward trending ever since," says Randy Cruse, a broker for Century 21 Shattuck and Grumett.

Single-family homes in the $80,000 to $150,000 range were drawing most of the buyers in Juneau by the end of the first quarter. The inventory plummeted from 200 at the peak to about 40 by the end of March. Brokers even began advertising for new listings.

"A good number of the houses sold over the last few years were (foreclosed) properties. Now the emphasis is on owner-for-sale houses," Cruse says.

What surprises the experts in Juneau is the rapid speed at which the residential market is recovering - growing about 1.5-2 percent a month during the past year. Says Michael Thomas, municipality assessor for the City and Borough of Juneau. "We've seen a 20 percent increase in single-family homes, especially the higher quality ones. Because there's a lot of potential in the mining industry, I would expect to see some speculation (building) this year. The rental market is really tight and there's a demand for housing. Realtors are begging for listings. We've seen a real turnaround here."

Noting the condominium and zero lot line markets really took a beating during the recession, Thomas predicts they will be slow to recover. He says over-building contributed to a 50-60 percent decrease in valuation, compared with 25-30 percent for single-family homes. "The good-quality properties - waterfront and downtown - were not hit hard," Thomas adds.

He explains the commercial market in Juneau is a "whole different ball game," Says Thomas, "It was never hit as hard as residential. They backed off and didn't overbuild. The market isn't doing much of anything." Despite increases in rental rates, he doesn't expect growth in the commercial markets until mining raises demand.

Attitudes about Alaska have changed for those who elected to stay and weather the storm. Thomas of Fortune Properties says, "In 1986, we had something very negative going on. There was a lot of denial. Today the feeling is we really have survived."

While the last recession was particularly severe, Thomas points out Alaska's history is potted with "waves" of economic ups and downs. But he points out Anchorage has experienced a 3.5 percent annual growth rate during the past 16 years.

"The simple answer is the economy can be expected to have waves," Thomas says. "There has been a predictable growth rate over the past 16 years. Will that continue? I don't know. It's hard to shut off an area where you have a young and enthusiastic population. People come here to start something with an optimism and confidence about the future."
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Author:Tyson, Ray
Publication:Alaska Business Monthly
Date:Jun 1, 1990
Words:2071
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