With the Republican National Convention in full gear, all eyes are on Houston, where recapitalized banks and thrifts are back in the business of financing apartments and shopping centers.

But the President's political handlers may not choose to spotlight the lending revival in Houston as an example of a Bush administration success.

Even five years into the recovery from the big mid-1980s oil bust, loan volume remains a small fraction of what it used to be. And the tough lending terms available won't cheer developers elsewhere who are awaiting rebounds in their regions.

Job Loss Jolts Recovery

Moreover, the city's recovery has sputtered just when a semblance of balance was beginning to return to the overbuilt market. While most observers say it's too soon to declare the recovery dead, Houston lost 7,000 jobs in the 12 months ended June 30.

That 0.4% employment decline is attributed partly to a recent contraction in the energy sector. But another factor is fall-out from the national recession.

Robert C. Hunter, vice chairman of Texas Commerce Bancshares, a unit of Chemical Banking Corp., noted that a reduction in the city's dependence on oil had made it more sensitive to national trends. "For better or for worse, we're part of the United States now," he said.

High Vacancy Rates

Although rampant growth created more than 100,000 jobs from 1988 through 1990, vacancies in all but the residential realty sector remain higher than national averages.

"Everything that's built, other than apartments, is going to be built-to-suit," said John T. Fenoglio, chief executive of the commercial mortgage bank Holliday Fenoglio Dockerty & Gibson Inc.

Even in the apartment sector, he said, the 3,500 to 4,000 apartment units projected to be completed this year are "probably one-fifth of what was normal in the 1980s and one-tenth of the peak year."

Tougher Loan Criteria

Still, Mr. Fenoglio said, Houston is fortunate to have any lender willing to provide interim construction loans.

"We're all competing for the loans, but the criteria have changed," said Michael T. Davitt, senior vice president of commercial real estate lending at United Savings Association of Texas, a thrift that was recapitalized with government assistance in 1988. It is to change its name next month to Bank United of Texas.

Previously, lenders required little equity and paid little attention to property income, assuming that rising property values would cover the risk.

No Offices Built on Spec

Now, said Mr. Davitt, "we're getting 25% to 30% equity for any commercial real estate loans." And bankers want to see projections of income at 1.2- to 1.5-times the cost of meeting debt payments, he added.

But while the apartment market is booming, office vacancies remain high enough to forbid new speculative construction, bankers said.

The oversupply of retail space, meanwhile, also remains high, at a 19.8% vacancy rate, compared with a 10.9% national average.

Still, retail rents have continued to edge up, albeit at a pace well shy of the 12% gain in 1990. And this has led to some new construction loans for well located centers with strong grocery stores as anchor tenants.

Lloyd Lynford, president o Reis Reports, a real estate data analyst, greeted that news with a measure of skepticism, however.

Relatively Slow Absorption

"Last year, they had a good year for absorption," he said. "The fundamentals do appear to be in place [for a] return to rent growth. The bad news is, we're left at 18.5 million square feet of vacant space, which represents a six-year supply.

"Unless absorption were sufficient to reduce the stock at a faster pace," he added, "I don't think you can expect rent increases to exceed inflation."

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