The Charlotte Observer from Charlotte, North Carolina • 23

THE CIURI OTTE OBSERVER Sun Oct 12 1975 9B The Business Beat Roy Covington Ts Trouble For Banks STfig (tlmrlottg (flbsmw Business Financial By TERRY ATLAS Observer Stall Writer A few months ago the real estate investment trust (REIT) was one of the hottest things going on Wall Street During those boom days interest rates were relatively low and the real estate business was going great guns the perfect atmosphere for the REITs which made their money borrowing (mostly from banks) at one price and lending to builders and developers at another generally much higher price IN THEORY it was an opportunity for the little guy to get in on the action in real estate since a REIT (pronounced maintained its tax-free status as long as 90 per cent or more of the profits were paid as dividends to shareholders Then suddenly last year the bottom fell out of the real estate market interest rates soared to record levels and the nation sank into its worst recession in more than 20 years The REITs were stuck with millions in bad loans as many real estate pro-iccts went under and defaulted on their loan agreements and REIT shareholders were left with stock that in the space of a year had lost 90 per cent of its value The full impact of the financial plight of the REITs on their major creditors the banks is still uncertain today But one of Wall top bank-watchers says R-E-I-T spells trouble for the banks believe the REITs are the largest problem facing the banking industry today and further that bank managements have not realistically appraised their exposure to principal loss on their $11 billion of loans to says George Salem a security analyst with Drexel Burnham in a new study of bank loans to REITs He advises steering clear of bank stocks the threat from the REIT situation appears to be SALEM ESTIMATES that banks may Troubled Real Estate Is Eer) where and bonks oi tied to lot of it absorbing the excess inventories of properties existing today and-or increasing their marketability and sales OF THE NAT ten largest banks (excluding Bankers Trust) Salem expects the ones to be hurt the most are: First Chicago Corp Continental Illinois Corp Chemical New York Corp and Chase Manhattan Corp The report notes that NCNB Corp has REIT exposure but sponsors a REIT (Tri-South Mortgage investors) and has construction loans in its mortgage banking According to the National Association of Real Estate Investment Trusts a Washington-based trade group at year- have to write off about $1 8 billion of the $72 billion in loans to the most financially troubled REITs an action which would take sizable bites out of the earnings of some large banks The impact on nine of the largest banks he estimates would be to cut earnings 10 to 20 per cent annually for the next two to five years basic conclusion of this report is that bankers in general have in our opinion been underestimating their vulnerability to writeoff of principal on loans to very troubled he says seem to believe that inflation patience and a better economic environment will alleviate the pressures on REITs and subsequently the banks by I 1 1 (on Smith Simply Oulran Speedway's Kicliard Howard The race for control of Charlotte Motor Speedway is over As a sports writer might describe it Durable Richard Howard starting from the pole position made a remarkable run for the money before being forced into the pits His exodus left the lead to hardcharging Bruton Smith who climaxed a brilliant comeback with a stretch drive that left onlookers gasping Howard the likeable oversized countryman from Denver who took the speedway when it was in shambles and made it something worth fighting for has said that he plans to resign as general manager in January at the annual shareholders meeting lie will and A Wheeler will in all likelihood be named to succeed him ALTHOUGH announcement was delayed until after last weekend's successful running of the World Service 300 and the National 500 the contest over who controlled the Cabarrus County racetrack has been a no-contest for some months now Smith got what amounted to absolute control almost three months ago when he bought around 80000 shares from Howard's wife relatives and friends Records now on file with the Securities and Exchange Commission indicate that Smith picked up around 50000 shares that were listed in name and another 16000 shares or so from his sister and brother-in-law Approximately 13000 additional shares were bought from a close friend of THE STOCK WAS purchased on July 23 and the flurry of activity caused prices to bulge momentarily Smith paid $2 25 per share for the Howard block of stock a premium price considenng the $150 to $175 range in which the Charlotte Motor Speedway issues had been trading Smith a wealthy car dealer (seven agencies with an eighth to be purchased this w'eek) has continued to amass speedwav stock until today he holds about 800-000 of the 1884723 shares outstanding Considenng that no more than 1 3 million shares nave e' e-voted (the record was set at tumultuous shareholders meeting when Howard wrested control back from Smith) his position is now secure The two men at least on the surface are as different as Fords and Cadillacs Howard is a rough-hewn giant of a man given to covering his great mass with simple threads Smith is tailored and flashy with the glitter of jewelry and patent leather HOWARD WAS RUNNING a discount furniture store in Denver and beginning to venture into other investments when Smith and the late Curtis Turner loincd forces to build the Charlotte Motor Speedway in the late 1950s Undercapitalized from the start the raceway was in litigation long bctoie it was ready for the first stock car Caught up in charges and countercharges and swamped in unpaid bills the speedway went into Chapter 11 for reorganization Smith was ousted and Howard a stockholder at the time was to emerge in 1963 as general manager While Howard was building the speedway into one of the most successful ovals in the South Smith was in Rockford 111 accumulating auto dealerships end 1974 there were 208 REITs with approximate total assets of $21 billion In addition to short-term bank borrowing REITs generate needed funds by longterm borrowing mostly from insurance companies and selling securities to the public By count 32 of the 50 largest REITs are in serious financial trouble Included in that group are: Cameron-Brown Investment Group which is sponsored by First Union Corp Tri-South Mortgage Investors which is sponsored by NCNB Corp First Merchants National Bank of Richmond and The First National Bank of Atlanta and Wachovia Realty Investments which is sponsored by The Wachovia Corp THE 63-PAGE report is a turnaround from the one prepared by Salem in February in which he predicted that while banks would be hurt by reduced interest payments by REITs their loans would be reasonably safe Salem says his dramatic reversal was prompted by several factors: the worsening financial condition of some of the giant REITs has made it difficult if not impossible for them to pay any interest to bank lenders huge losses have become common among REITs stricter accounting methods will further hurt REIT earnings and the development of (banks buy loans from REITs and cancel a portion of the bank debt) mere fact that they (loan swaps) are being proposed in very ambitious proportions is evidence of the desperate financial plight of the REITs says Salem are large differences in the fa a i a 1 among individual he says it remains a distinct possibility that in our opinion 40 to 45 per cent of bank loans to the industry are to REITs where bankruptcy threatened increasingly and an additional 20 to 25 per cent are to REITs with significant although somewhat less threatening Are Square Poles Coming? Knight Newspaper! HOUGHTON Mich A Michigan energy research group says it has a plan to save trees by making telephone poles out of odd bits of wood glued together The scientists who are working on this idea with backing from three major Michigan utilities say that with their method the millions of phone poles could someday be Square rectagular or octagonal Hollow Better looking because they tould be color blended with the scenery More resistant to woodpeckers Cheaper to produce This is a serious proposal and the Michigan Energy and Resource Research Association (MERRA) has applied for a $300000 federal grant to fund experiments with phone pole fabrication at Michigan Technological Institute for Wood Research in Houghton in the upper peninsula Association scientist Matthew Mashkian said the principle of the fabrication is to take waste wood chips left from lumbering for example and bond them together with synthetic rosins under pressure thus producing long sheets that then can be similarly bonded into telephone poles The research institute has already produced boards from waste wood that have been used in construction of homes The same svslem can be applied to making telephone poles 40 50 and even 100 feet tall the association says Because the poles will be fabricated rather than harvested fiom the foiests extra chemical protections to discourage woodpeckers insects and other pests can be added Mashkian said Millions Of Dollars Continue To Sink Into Sticky Tar Sauds 'S6 Tulsa Okla and the governments of Canada and the provinces of Alberta and Ontario The arrangement resembles what would happen if the federal government in Washington and the state governments in Texas and New Yoik invested hundreds of millions of dollars in equity partnership with oil companies to develop synthetic crude perhaps from the oil shale rock in the Western United States ESTIMATES are that it would take a market price of $17 a barrel to make it economic to produce synthetic crude from Colorado shale Syncrude estimates its cost of production at $9 a barrel from the Athabasca tar sands But some oil analysts say it will be only marginally profitable even at the current world crude price of $1 1 51 Merle Rudiak was waiting at the Syncrude gate house to show the site to visitors have over 4000 men woiking on Mrs Rudiak said bouncing over the mud holes in her Ford club wagon will be the extraction plant and there the utility plant And that that over there That there last The 600-foot utility and gas stack the hydro-theater the 20-odd cranes and the dragline laydown area it all began to look somewhat like a white elephant Arguments do still rage over tar sands development is it some obsessive national foil or a long-range solution to the energy crisis? BUT IT seemed to some that allowing for the Canadian coloring of geography climate and fractious provincial politics the tar sands experience could offer Americans useful lessons about the development of synthetic fuels about the commitment of industry and the involvement of government about the time and money and human resources needed to chase the goal of energy self-sufficiency For years Ontario and Western Canada could count on unlimited supplies of domestic oil mostly from Alberta But the pipeline was never extended east of Ottawa the Canadian capital since Eastern Canada found it cheaper to import low-cost foreign crude By JOHN LEE The New York Times FORT McMURRAY Alberta Canada The ram had turned the road to grease and up ahead three cars were raked over the side A big yellow Caterpillar was trying to get them out The caravan of trucks and cars snaked through the mist of northern Canada wagging their tail lights behind them It wms 25 miles outside this frontier oil towm and in the broken country of stunted spruce and golden poplar there were only two possible destinations for the travelers ONE WAS the vast oil preserve and plant of Gieat Canadian Oil Sands Ltd stretched along the fast-flowing Athabasca River whose banks ate littered with the skeletons of experimental oil extraction plants For the better part of a decade Great Canadian a unit of the Sun Oil Co of Philadelphia has struggled to attain economic production of synthetic crude oil from the bountiful but devilish Athabasca tar sands Five miles up the road was the other possible destination a similar operation by Syncrude Canada Ltd still in early construction stages but a proiccl seeking economies of scale Somewhat misleadingly named the are enormous swamps of heavy high-sulfur molasses-thick oil known as bitumen found heie mixed with fine sand and clay The extracted oil is called because it must be upgraded before it matches the product of a conventional oil well Billions of barrels of oil are locked in the gritty sands and their presence has increasingly tantalized an energy-hungry world SUNOCO HAS invested $300 million in the first commercial venture All it has to show for it so far is a modest amount of oil a lot of bitter experience and a cumulative loss of $8 million Syncrude is more than twice as big as Great Canadian and carries a staggering price tag of well over $2 billion The concern is an unusual public-private venture bringing together units of the Exxon Corporation of New Yoik the Gulf Oil Corporation of Pittsburgh the Cities Service Company of i 5 WIILN SMITH REAPPEARED on the Charlotte Motor Speedway scene in 1973 as a major stockholder the Old Guard questioned just how real his monev was He settled some of those questions by oidru mote than $10000 worth of fiiim'uie tor his Rockford home through furniture outlet He brought in World Service I ife as a race sponsor In Janudiy of Ibis year Smith came to the annual shareholdeis meeting 1 feeling comfortably seem with the 500000 shares he held There had been unanimous agreement on a slate doting the meeting the night before and the directors had enioyed an affable meal together afterwards BUT THE ANNUAL meeting was another matter I-Smith found himself being outvoted as proxies that had been quietly solicited by some of the directors cajue pouring in A shouting match ensued with Howard coming out on lop There is evuy indication that Howard would have liked to have remained there There are many raceway fans and duvers who still would like to see him remain there But it came down to a simple matter of horsepower and with a net worth reliably placed at around $8 million Smith simply had more wheie it counted PURNIITURE? WHY YOU SHOULD BUY YOUR OFFICE FURNITURE FROM US are full rail carload buyer! of desks chairs files table and other furnishings both wood and metal in either conventional or contempo- rary design We have warehouses of stock new and used for immediate delivery Because we buy in the largest quantities at the lowest possible merchandise and freight costs and because our operation is the low-over warehouse type we can and do give our customers the best quality at the lowest possible prices We ask you to look and compare with all others Check item for item and quality for quality We sincerely believe we are offering the best office furniture buy! of any dealer in this part of the country 3-JVl Copying Machine From Old Tires Getting Seeoinl Look As Source Of Energy Oil Steel 'ALWAYS QUALITY AT A SAVINGS" 375-2554 1423 Tryon St Charlotte ql INVENTORY CONTROL PERSONNEL WANTED! If yog or your people have the need for more up-to-date knowledge of pio duction planning and inventory control we can be of great help to yog We are the American Production and Inventory Control Society (APICS) and have 12 000 member nationally For information regarding the local diopter contact Robert Moore (704) 372-9020 NEXT MEETING Wed October IS at 5 30 Rodeway Inn at Woodlawn and I 77 6 I Speaker Georqe Plossl on MRP I CHAIR SALE OVER 200 CHAIRS TO SELECT FROM NEW LIKE NEW "USED" CHROMCRAFT UNITED CHAIR SLACK CHAIR By JAMES MATEJA Chicago Tribunt What do you do with 165 million tires that motorists discard each year? Some people convert them to backyard swings Others make miniature sand boxes out of them But many simply throw them in fields along the roadway when no one is looking Goodyear Tire and Rubber Co is now looking for ways to turn those mountains of scrap tires into treasure instead of trash Recycling experts arc viewing the growing number of discards as a significant souice of energy taw materials and building blocks for many other innovations EHORT to find new and positive uses for worn-out tires dates to said Thomas Minter excutive vice president-pi oduction for Goodyear While the concern for energy and raw material conservation has gained momentum only in recent months Minter said the search for methods of recycling scrap tires new recycling goes back 45 yeais or more But until relatively recently there the public interest in he said One major recycling idea being tested by Goodyear and The Oil Shale Coipoiation (TOSCO) is the application of oil shale recovery technology to the recovery of oil and other reusable materials from scrap tires Preliminary studies by the two companies were promising and entered into an agieemcnt to build a scrap tire test facility at Rocky Flats Colo It will process about 15 tons of discarded tires a day beginning early next year as part of a $2 2-nnllion development program I OLLOWING SUCCESSFUL operation of the test plant Goodyear would build the first full-scale facility to recover raw malerials from old tires Fifteen full-scale plants could recycle all the 165 million tires worn out annually in the United States Proposed for construclion in 1977 the plant would SHAW WALKER GENERAL FIREPROOFING UNITED LIST SALE cost an estimated $18 million It would pioduce its own gas for fuel as it recovered 14 million gallons of oil 10 million pounds of steel and 63 million pounds of carbon black from 11 million scrap tires a year The three byproducts of old tires are also raw materials for new ones synthetic rubber is made from oil carbon black strengthens rubber and steel is used in tire beads and belts The Tosco process uses prolysis (chemical decomposition by heat) to distill ground-up scrap tires ANOTHER RECYCLING approach being pursued by Jackson (Mich plant is a tire-burning boiler the first of its kind in the US Now under test when fully operational the automatically controlled furnace will consume more than one million worn-out tires gcneiating steam needed for new tire production Scrap tires also have potential as a substitute for conventional fossil fuels Goodyear scientists say with rubber having a BTU value about 50 per cent greater than coal Another of ideas to recycle scrap tires involves underwater housing projects for fish In pilot artificial scrap tire reef projects at Fort Lauderdale Marco Island Naples and Fort Myers Fla Goodyear has developed technology for turning millions of junk tires into building blocks for underwater high rises To build the reefs tires arc punched on specially designed equipment to reduce buoyancy then compacted bundled and weighted with concrete THE BUNDLES are then dumped into the sea at selected sites and in a short time become encrusted with delicaLe marine growth The food chains become a haven for feeding and spawning fish SrECiAL ScLECTiOii ARMLESS SIDE CHAIR $18 SECRETARIAL $35 STEELCASE SECRETARIAL $65 EXEC SWIVELS $40 EXEC POSTURE $40 SIDE ARM CHAIR $28 ARMLESS SIDE CHAIR $30 EXEC SWIVEL CHAIR EXEC SWIVEL CHAIR $17722 $9700 SIDEARM CHAIR $13200 $6600 DUCKET CHAIRS $8500 $4500 CHROME CRAFT SWIVELS SIDEARM CHAIR UNITED SWIVEL CHAIR $8800 $6500 MANY OTHER SELECTIONS pcciuftze in fntJqcl price office furn ifure "BECO" BUSHES EQUIPMENT COMP 2723 South Blvd SEDGEHELD SHOP CTR Ph 527-1877 I.