Debt-ridden for most of the past six years and fighting off what its chairman deemed unacceptable alternatives of bankruptcy or liquidation, American Realty Trust has stepped back from the brink, hoping to make another strong run at the real estate market.
In fact, the Arlington-based realty trust is so confident of a return to solid financial footing that it sought and received approval in April to resume trading on the American Stock Exchange.
"We're just getting even with the board," says ART's chairman, Thomas J. Broyhill. "After six years of paying off old debts, we can take a new look at things."
Broyhill firmly believes that "in real estate, time will make a genius out of an idiot." In fact, he passes out business cards bearing that bit of philosophy. is successes and failures in real estate haven't prompted anyone to call him an idiot or a genius. But he has earned a reputation as a hard-nosed, hard-driving, wily executive, with a tart tongue and a sharp eye for a good real estate deal.
"Tom is a salesman," says John Sumter, vice chairman of American Security Corp. "He's hard-sell and very smart. He drove a small-sized company into a good-sized company and then got caught with the problems most REITS real estate investment trusts had."
One of the nation's oldest realty trusts, American Realty soared among the leaders of the high-flying trusts in the early to mid-'70s.
But, "When the crunch of '75 and '76 happened," Broyhill recalled in a recent interview, "in the years following, about half the trusts bit the dust. Banks had gone too far out on a limb with them, and banks want to be repaid.
"They weren't able to be repaid, so a lot of [trusts] went into bankruptcy. A lot of them chose to liquidate."
But Broyhill sometimes wonders "why I didn't just liquidate the trust and forget about it."
Asked why he didn't do just that, Broyhill replied: "Pride, I guess. I don't like to be connected with failures. I've got a little saying that 'time makes a genius out of an idiot.' That's just about right, particularly in real estate.
"I called all the banks in 1976 and told them it would take three to five years to pay them back, that they would get all their money. If they pushed me they'd be dealing with the bankruptcy court, because I knew damned well they'd give us time to work ourselves out.
"They had a hard choice: either going along or working through the bankruptcy court. And I don't like to be hard-nosed about things but sometimes you have to call a spade a spade."
One banker who has had business dealings with Broyhill implied that that approach eventually caused a less-than-amicable relationship between them. "I'd rather not comment," said the banker who asked that he not be identified. hen the crunch hit, ART owed banks about $23 million, but Broyhill boasts, "We've paid all of that back plus about $7 million worth of interest. It's been a big bite. That's why the last five years or six years have been quite much of a headache."
For whatever reasons, most of ART's banks went along with Broyhill's plan for repayment, and he cites their cooperation as a key factor in ART's survival. "If you try to work with a bank, they damn well will cooperate with you. And I can say this for our banks. Every one of them was very cooperative."
Given the breathing room provided by the banks, "We just pulled our horns in and slowly but surely wiped away all our debt," Broyhill recalled. "Sold a little property; not a whole lot. I would say about $15 million worth."
Operating results reported by ART for the second quarter ended March 31 showed a net loss of $400,804 (18 cents a share) compared with a net loss of $213,621 (10 cents) in the year earlier period. Revenues rose from $1 million to $1.25 million.
For the most recent six-month period, ART reported net income of $5.8 million ($2.62 a share), including gains of $4.76 million from the sale of real estate. Net income also included a tax credit of $1.5 million (68 cents).
In the comparable period a year ago, ART reported a net loss of $136,272 (six cents) after a gain of $195,372 from the sale of real estate. Revenues increased from $2.75 million to $3 million.
Broyhill expects improvement in the second half, which historically is a better period, he said.
"It's not the best time to be getting in the real estate business," he said, despite what he calls the company's solid financial footing. "But at least to us it's a breath of fresh air."
Broyhill said the trust recently has concentrated more on developing property that it was forced to take back in foreclosures. Those, he added, are down to a "workable" number.
"When you've got vacant land you're paying taxes on, this, in my book, is a dead cat. It's no good to you until you make it productive. It's just a drag on your return." eanwhile, ART embarked on a new course by buying a small real estate trust in Detroit in April. In what Broyhill called a "friendly arrangement," ART bought shares in the trust from two of the biggest stockholders. Preparations have been made for a tender offer for the remainder of the stock.
"It's a friendly takeover. At my age 72 , I don't care about battling anybody unless they step on me," Broyhill remarked. "If they do that, then we got a different thing. But you don't want to go around messing up anybody's backyard."
With the purchase of the Detroit trust, ART will have assets of about $45 million, "if you want to look at book value," says Broyhill. "If you want to know the real value it would probably come closer to $90 million."
In the future, real estate trusts will have to develop their own investments or buy companies, Broyhill believes. "I think that's the only way a trust like this can make it."
"I used to get a hundred deals a month on my desk. Now you get one or two and they aren't even worth picking up the telephone and asking about them."
Was it a case of not being able to cope with changes in the economy or did miscalculations by ART cause its problems?
"Well, it's when you get out of your bailiwick," replied Broyhill. "When you start monkeying with something you're not absolutely familiar with you get in trouble. What happened to us was that we were strictly an equity trust. We just bought property, operated it and that was it."
Part of the problem, he said, developed when ART agreed to act as a standby for loans. "You know, the banks would take you as a standby and you'd pick up two points for nothing. Just putting up your credit line.
"But when the crunch came you had to pay off a lot of those standbys. And you took over a lot of property you never dreamed you would take over.
"This was really what caused the crunch in our trust and broke the Chase trust. . . . We got overextended in the mortgage business and something we just weren't equipped to handle."
Broyhill's praise of banks that went along with his repayment plan contrasts sharply with his caustic remarks about critics and opponents. He has crossed swords with trustees (directors), stockholders, employes and the Securities and Exchange Commission, among others, and has survived.
And he has managed to keep ART alive, even if it isn't as robust as it was eight or nine years ago.
Although he describes ART's trustees as "above average" generally, Broyhill acknowledges, "I take a most cynical view of most boards, having chaired a couple of them in my lifetime.
"Generally, if you get 20 members of a board, generally four or five are real directors, working directors that think and give you suggestions. They help the company along. The rest of them show up to read their names in the paper. We call them window dressing.
"You have guys that are directors of 15 different companies and they contribute absolutely nothing. But they step up to the window and get their fees.
"I'd much rather have a newspaper boy on the corner that's a hustler and knows what's going on than have the president of General Motors."
Broyhill and his supporters recently purged the board of dissidents who apparently backed another trustee for chairman.
"One of these trustees was trying to take over the company," Broyhill charged. "He's no longer on the board, put it that way," he emphasized through clenched teeth.
ART actually replaced four members of the board at its last meeting.
"When you start forming cliques within an organization it is more dangerous to a company than a forest fire with a 50-mile-an-hour wind behind it. It will keep pecking away and keep the company in turmoil. So the best thing to do is eliminate it."
Broyhill eventually eliminated the job of a former employe whom he accused of eavesdropping on him for the SEC.
He accused the former employe of "recording everything that went on in my office." What's more, he speculated, "I think he might have been promised that he would be president by the SEC." he SEC accused ART in 1972 of violating security regulations and of withholding information pertaining to sensitive loans.
"To a layman reading the newspaper, you would think somebody had absconded with a million dollars," Broyhill lamented. "Damned if I didn't drive Kissinger off the front page. Vesco? Hell, he was on page nine.
"But you see, after all, the Broyhills had been around a long time and some of them not so popular with different views."
Broyhill is a cousin of former conservative Virginia congressman Joel T. Broyhill.
A federal judge dismissed allegations by the SEC that ART defrauded investors by withholding information concerning sensitive loans. But the Fourth Circuit Court of Appeals reversed the lower court's decision.
According to the court record, Thomas and Joel Broyhill and a third person formed a partnership in connection with the development of a condominium. ART made a loan commitment of $10.8 million with the understanding that neither Joel Broyhill nor the other man were to have any personal liability for repayment of the funds.
When ART encountered difficulty raising funds it agreed to commit to the project, Chase Manhattan Realty agreed to advance $10 million and ART said it would provide additional funds as needed.
In a prospectus issued later in connection with new debentures, ART omitted any disclosure that the partners in the condominium project were not personally liable for repayment of the loan or that the trust was a guarantor of complete repayment of Chase Manhattan Realty's loan portion, the court said.
In another charge in the same case, ART was accused of failing to disclose in the prospectus that Broyhill's daughter and her husband were partners in a development venture to which the trust lent $1.2 million.
Broyhill claims the entire matter was "blown out of proportion."
The information was in the prospectus, he said, "but it didn't use enough words."
The prospectus contained information about the loan to the company in which his daughter had an interest, he contended. "That was spelled out. And it also said that the chairman, Mr. Broyhill, interceded. I just called them and asked them if they wouldn't make the loan. I didn't put any pressure on them at all."
Broyhill offered no explanation on the other matter, however.
The SEC didn't fare very well in the case, Broyhill contends. "And I think they were satisfied that after a year-and-a-half investigation and finally a trial that there was nothing to hang their hat on."
His attorneys advised him to appeal, but when he began adding up the costs, "It wasn't worth it," Broyhill said.
"It didn't affect us one damn bit. Nobody was accused of fraud or anything."
All of that's behind him now "and I'm a helluva lot wiser than I used to be," Broyhill laughed.
And older. The founder of ART plans to retire at the end of the year. But he admits, "I don't know what the hell I would do if I did retire ."
But the "aggravation" has taken the pleasure out of business for Broyhill.
So, he's going to "get a young man in here and let him worry with it."