A new neighborhood in southeast Bend, The Bridges at Shadow Glen, consisted of eight homes and a $2 million recreation center when the financial crisis of 2008 nearly gutted Pahlisch Homes.

“We’re very, very proud of the fact that together we completed a beautiful community with Washington Federal,” said Pahlisch Homes founder Dennis Pahlisch. “Ten years later.”

For people working with real estate in Central Oregon, the crisis began to unfold in 2007 as what many people perceived as a simple slowdown, Pahlisch recalled earlier this week. Mortgage loan default rates were going up, but it took time for the trend to work its way through the secondary markets and hit the financial institutions that had invested so heavily in mortgage-backed securities, said Kirk Schueler, president of Brooks Resources Corp., developer of NorthWest Crossing and Awbrey Butte. So the Monday that Lehman Brothers Holdings Inc. filed for bankruptcy protection — Sept. 15, 2008 — was “confirmation, if it was anything,” he said. “It was confirmation. It was real.”

Many people whose lives and careers were profoundly affected by the financial crisis don’t remember the Lehman Brothers bankruptcy with the same clarity they recall the terrorist attacks of Sept. 11, 2001, or Mount St. Helens’ eruption in 1980. But Lehman Brothers’ failure was a recognizable, public event, so it makes as good a symbol as any for the entire dark episode.

“I went through a great depression — personal depression,” Pahlisch said. “I had to go on medication.”

Bend was one of the fastest-growing real estate markets in the country, and the precipitous decline in values put land developers, construction contractors and banks out of business. Anyone whose livelihood stemmed from real estate felt the blow, said Kenny LaPoint, a former foreclosure counselor for NeighborImpact, a nonprofit organization.

“I was getting 150 phone calls a day from people who were going through foreclosure in Central Oregon,” he said.

LaPoint said he remembers the Lehman Brothers bankruptcy filing, but it didn’t resonate with him as much as the people who were dealing with the fallout. While he was able to obtain loan modifications for some clients, most often people let their houses go into foreclosure, he said.

“There were many, many circumstances where there was a health issue in the household, or a divorce,” something beyond the family’s control, LaPoint said. “Those situations were absolutely heartbreaking.”

A lack of control was the biggest struggle for Pahlisch. The 60-year-old started his career after high school framing houses. Before the crisis, he had 110 employees. When the market first slowed, he said banks reassured him as long as he kept up interest payments, he could hang onto land. When values dropped so far that banks didn’t have enough reserves to cover the gap between land values and loan values, they called the loans. Lots were sold for pennies on the dollar.

Pahlisch said it was the first time in his career he couldn’t work hard enough to make a difference. “You just feel like your value’s gone,” he said.

He knows of five people from Central Oregon’s development and construction industry who killed themselves. Pahlisch laid off people every week until the company was down to 12 employees. One bank, Washington Federal, had enough reserves and was willing to keep some of his company’s projects afloat, he said. He lost millions in 2008, 2009 and 2010 keeping the company open, though sometimes the only work was moving furniture or shoveling snow. “You do that to have a machine out the other side ready to go,” he said.

Brooks Resources rode out the recession partly because of legislation President Barack Obama signed in November 2009, Schueler said. A rider on the bill that extended unemployment benefits gave corporations a one-time opportunity to carry back losses five years, he said.

Brooks Resources took advantage of the change in tax law and sold lots in stalled developments in Prineville and Madras at a deep discount. “That gave us quite a bit of cash to sort of weather the storm and prepare for opportunities in the future,” Schueler said.

Not everyone has bounced back from the Great Recession. Banks could take three or four years to foreclose on a house, which means the former homeowners still carry that blemish in their credit histories, LaPoint said. That’s making it difficult for some people to buy houses or even rent apartments now, he said.

“Generation X as a whole was destroyed by the real estate bust. The net worth of our generation has not recovered,” said Jesse Felder, a 44-year-old former investment adviser and editor of the investing newsletter The Felder Report.

Having witnessed the dot-com mania as a trader, Felder said he tried to warn people Bend was in a real estate bubble. He sold his house on Bend’s west side in 2005 and rented for two years. The portfolios he managed for family and friends during the crisis recovered, he said, but he lost his taste for managing other people’s money.

“It’s almost impossible to get people to do the right thing at the right time,” he said.

Pahlisch said he’s changed the way he does business, too. He finances land development and acquisition through private investors rather than banks, though private financing is more expensive.

“We make less profit than we did in 2008,” he said.

— Reporter: 541-617-7860, kmclaughlin@bendbulletin.com

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