(FORTUNE Magazine) – The construction crane, recently thought extinct in Houston, has reappeared. Two projects have been announced, an 18-story headquarters for Anadarko Petroleum and a 20-story home for British Petroleum's BP Exploration. No city in the U.S. has boomed or busted and started to rebound quite like Houston -- at least not yet. The community offers a fascinating study of what happens when real estate falls to those market-clearing prices that analysts say are necessary in order for the industry to make a comeback. Some 80 million square feet of office space has been built there since 1980, essentially doubling the existing stock. But around 1983, the slump began. Even as new buildings were being completed, oil prices continued their long, frightening decline, and rents followed. As a result, a number of high-rises defaulted and were taken back by their lenders. One in four apartments became vacant, and today the price of raw land is down about 60% from its boom-time peaks. Houston took it on the chin -- and everywhere else. But it was able to inject more than $5 billion -- raised from a combination of tolls, taxes, and bond offerings -- into its infrastructure, despite the downturn. This accomplishment and its revisionist approach to real estate offer an example for many other pained municipalities now undergoing their own real estate bust. The city knew what to do to get business back. A second highway loop is nearly completed; a new north-south toll road connects the city to the ) airport. The sewage system was upgraded. There is even talk of zoning in this hodgepodge of office towers, homes, and industrial buildings. The addiction to oil that nearly killed Houston has lately helped save it as the petroleum industry restructures. In the late Eighties, several companies shut regional offices in Denver, Oklahoma City, and Odessa and Midland, Texas, and brought the survivors back. Says James P. Gaines of GA/Partners, the real estate consulting arm of Arthur Andersen & Co.: ''Houston unquestionably won the consolidation war.''

Vacancy rates still hover at 20%, but the market for quality space is tightening. Rents in prime locations are moving up, to about $15 to $18 a square foot from a low of $9 during the bust. (In midtown Manhattan, prime space rents for $45 to $65.) Less than a quarter of the city's office space is in the downtown business district. Instead, Houston has five separate ''activity centers'' that each support a self-contained mix of residential, retail, and commercial property. This kind of development is likely to become a pattern as technology obviates the need for corporations and their support retinues to be centrally located. The locations are ones that employees find attractive. Says Anadarko vice president Charles Manley: ''How do you get 'em and how do you keep 'em? Lifestyle is big. That's how we arrived here.'' Besides being close to the airport, Anadarko's site is across the street from a major shopping mall. The company's developer, an Exxon subsidiary called Friendswood Development Co., is also the builder of a master planned community 15 miles away where many Anadarko employees live. Houstonians, who once brimmed with the kind of can-do optimism mandatory for citizenship in Texas, have lowered their sights to accommodate a more modest view of the next five years. Says Gaines: ''Not everyone is convinced Houston has recovered. Recovering is the word.'' He reckons that sometime this year or in early 1992 Houston will be back to the employment level it reached in 1982, having lost and regained some 200,000 jobs since then. Last year more than 11,000 homes were built, up from 6,300 in 1987. The figure could be even higher this year, but no one is getting excited. Says Stan Creech, a property developer: ''It's a different community, a different feel. I don't see any danger of overbuilding again.''