THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: SUNDAY, June 12, 1994 TAG: 9406110320
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: STORY BY TOM SHEAN, STAFF WRITER
DATELINE: 940612 LENGTH: Long
``If you have any subpoenas here, take them across the street,'' Gibson quips as the mailman drops off a handful of letters and a news magazine.
{REST} There are no subpoenas, but one of the letters is from the Office of the United States Trustee, a unit of the Justice Department that oversees the administration of bankruptcy cases.
In between golf games at the Cedar Point course in Suffolk and preparations for new business ventures, Gibson is dealing with the fallout of a personal bankruptcy.
After three years of trying to satisfy the financial demands of lenders and partners, the trim, 70-year-old former banker filed last November for a Chapter 7 liquidation of his assets and debts.
Like thousands of real estate developers and investors who were active in the 1980s, Gibson found himself trapped by heavy debts on real estate partnerships.
``You can bet I lost a lot of sleep'' before resorting to bankruptcy, he says. ``I've been in bed at three o'clock in the morning and thought, `How am I going to get out of this mess?' ''
Gibson estimates that he turned over more than $3 million from personal investments in recent years trying to satisfy his creditors. But by last November, his assets had dwindled to $1.5 million, while his liabilities amounted to $29.9 million.
Going through a bankruptcy has been ``degrading as hell,'' but there were few alternatives, Gibson says.
The humiliation stemmed partly from having been prominent in the Hampton Roads business community for more than three decades. In the early 1960s, he had been a senior vice president at Norfolk's biggest bank and then left to establish his own bank.
With help from a handful of influential business owners and lawyers, Gibson launched the First National Bank of Norfolk in 1965 and headed the bank as it evolved into Dominion Bank of Greater Hampton Roads.
(Dominion and its parent, Dominion Bankshares Corp., were acquired in 1993 by Charlotte-based First Union Corp.)
During his three decades in banking, Gibson also served on dozens of civic, corporate and municipal boards and commissions, including the Norfolk board that oversaw development of the city's Scope entertainment and sports arena.
Despite his financial difficulties, Gibson displays the same mix of charm, brashness and determination that defined his personality when he ran Dominion Bank. And he doesn't hesitate to assess blame for his bankruptcy. His predicament, Gibson insists, was triggered by a sudden evaporation of bank credit for commercial real estate.
The enormous exposure that banks had to loans for hotels, office buildings and other commercial real estate by the late 1980s required federal regulators to take action, says Gibson, but their response ``didn't have to be so abrupt.''
Fearing a wave of bank failures and collapse of the deposit-insurance system, federal regulators in 1990 ordered banks to write down the value of their real estate loans whenever the value of collateral fell below the loan amounts.
The new rules applied even to established borrowers who were making their payments on schedule. Any developer or investor who had relied heavily on bank debt to finance real estate projects suddenly found himself in a precarious position.
``Us bankers have to take some of the blame because we were too lax,'' admits Steve Burch, a vice president at Chesapeake National Bank, a Kilmarnock-based bank and a creditor in Gibson's bankruptcy. ``But there are a lot of developers who were in business then who are still in business today.''
What distinguished Gibson's plight, says Burch, was the heavy use of leverage: significant amounts of debt on his projects and negligible amounts of equity. Still, Gibson's bankruptcy filing came as a shock to many local bankers. ``We didn't realize that his situation had deteriorated as far as it had,'' Burch says.
Gibson was no stranger to the world of bank lending or to real estate development. He had gotten into banking in the mid-1950s after briefly teaching English literature at the College of William and Mary in Williamsburg.
His wife's uncle, president of the largest bank in Norfolk, had encouraged him to take a job at the bank. So Gibson, attracted partly by the prospect of earning more than what he could as a teacher, left William and Mary for a marketing position at the National Bank of Commerce, the predecessor of Sovran Bank.
In less than a decade, he had advanced to senior vice president in charge of the bank's national accounts and correspondent banking. And some members of the bank's board let him know that he was on track to eventually be promoted to chief executive officer.
But Gibson was in a hurry, and he learned that federal regulators were making new charters for national banks more available than they had in the past.
So he left the National Bank of Commerce in 1964 and organized the First National Bank of Norfolk with help from a group of influential business owners and lawyers.
While board members Roy B. Martin Jr., V.H. Nusbaum Jr., Vincent J. Thomas and others helped bring customers to the new bank, Gibson used an array of unorthodox promotions to generate loans and deposits. Some of these attracted national attention.
``The other week, he bought an armored truck - used, but painted old gold - to do door-to-door banking for ice-cream stands and a slum store,'' Look magazine said in a 1966 article about Gibson, entitled ``Credit Au Go-Go: Look What's Happening to Bankers.''
By the time Gibson stepped down as CEO in 1987, Dominion Bank of Greater Hampton Roads had grown in asset size to more than $700 million and regularly posted above-average earnings.
In addition to building up a bank, Gibson assembled a broad network of friends that proved valuable in his real estate ventures. He drew on some of these during the mid-1980s when he helped expand a small realty company into FCR Group Inc., a Newport News-based umbrella for assorted real estate, financial-service and construction enterprises.
But the determination and charm that enabled Gibson to win confidence in the business community sometimes surpassed his attention to details, especially in the real estate expansion of the 1980s.
``Jack is a very persuasive guy, but it was a personal affront if you challenged him,'' says one person who worked with Gibson on real estate matters. ``I never heard him say, `I need more information.' ''
Other developers and investors in Hampton Roads say they were surprised at the array of real estate projects that Gibson was willing to take on. ``I was flabbergasted at the deals. They were so varied,'' says one shopping-center developer and owner. The difficulty of mastering the details of one or two types of projects makes it tough for any developer to diversify and remain profitable, he insists.
``Every time you switch from a motel to a shopping center, you have to learn the process again. Nobody can learn that much,'' the developer says.
Some of his projects were eventually saddled with too much debt, but he performed the necessary research when putting them together, says Gibson, who took on the responsibility of managing general partner in many of the partnerships he assembled.
``I'd like to think that all the projects were good ones at the outset,'' he says.
One Gibson-related venture that proved highly profitable was Whittaker's Mill, an 800-acre tract in York County. Along with a Peninsula developer, Everette H. Newman III, and a handful of other partners, Gibson assembled several undeveloped parcels close to Interstate 64 during the mid-1980s.
In July 1988, the group sold the land, along with the Water Country USA amusement park, to a British entertainment company for $34.7 million in cash and stock. Gibson estimates the group made a profit of between $3 million and $4 million on the transaction.
But court documents, including lawsuits and partnership records, indicate that several projects had been weakened by financial problems, disputes among partners and construction complications before the availability of bank credit began drying up in 1990.
Gibson was financially vulnerable because he had provided lenders with personal guarantees on loans they had made to many of these projects.
Among the projects mentioned in Gibson's bankruptcy filing that ran into difficulty were:
York River Crossing shopping center in Gloucester County. An undeveloped site along Route 17 in Hayes appeared ideal for a strip shopping center in 1988. Gibson and Newman, his partner in the project, were able to line up $9.3 million of financing from First Union National Bank of North Carolina.
Development of the shopping center was complicated by the wet terrain and the need to locate a septic-system drainage field some distance away from the center. By 1990, the partnership was having difficulty making interest payments on its loan, which First Union agreed to restructure. Two years later, Gibson's and Newman's interests were sharply reduced when the partnership was reorganized.
Faced with imminent foreclosure by First Union, the partnership sought Chapter 11 protection from creditors in bankruptcy court last June. The shopping center, whose tenant roster includes a Food Lion supermarket, a Revco pharmacy and two dozen other stores, was sold in February 1994 as part of a bankruptcy reorganization plan.
Atrium at Oyster Point office building in Newport News. Using a tract of land that he had already purchased, Gibson and a handful of partners built a $6 million office building on the site.
But the partnership's economic viability, Gibson said, had been jeopardized when one partner failed to lease the amount of space he had committed to. Gibson withdrew from partnership when it was restructured in 1991.
W.M. Jordan Co., the Newport News construction concern that built the Atrium building, took a minority stake in the partnership and eventually became full owner of the building, says John R. Lawson, president of W.M. Jordan. Lawson says the building has performed well financially but declines to discuss the partnership reorganizations that brought about the change in ownership.
Nickerson Plaza Shopping Center in Hampton. Officers of the Overton's chain of laundromats already owned a site on Nickerson Boulevard when Gibson began working with them in 1987 to build a 73,600 square-foot shopping center.
Gibson, however, pulled out of the partnership in August 1990, and Signet Bank restructured its $4.25 million construction loan to the partnership two months later.
William S. Overton, vice president of Overton's and one of the remaining partners, declines to say what prompted the partnership reorganization and loan restructuring. However, he feels no animosity toward Gibson, Overton says.
``A lot of us went through some very difficult times when the real estate market turned and the banks tightened up,'' Overton says. ``We were able to weather the storm, and Mr. Gibson wasn't. My heart goes out to him.''
Scandia Lake residential development in Henrico County. Scandia Lake Inc. borrowed $3.26 million from Crestar Bank for the acquisition of 293 acres and for residential construction. But the company, which included Gibson among its shareholders, ended up in a prolonged court battle with Crestar.
Scandia Lake won concessions from the bank but ran up heavy legal bills in the process. Gibson says he turned over his stake in Scandia Lake to another shareholder who paid the bills.
The strains on Gibson's financial resources were further complicated by a project that he and two friends had been developing on the island of St. Maarten in the Caribbean. He and partners John B. Bernhardt, a retired vice chairman of Sovran Financial Corp., and Richard J. Holland, a Virginia state senator and chairman of Farmers Bank in Windsor, decided in 1988 to develop a $10 million, 64-unit condominium on the resort island in the Netherlands Antilles.
But a project that seemed so lucrative only a few years earlier was mired in cash-flow problems and a shortage of financing by 1990. One of the lenders, a Dutch bank, eventually foreclosed on the building and sold it at auction.
By Gibson's estimates, the three partners lost about $4 million on their St. Maarten venture.
(See ``Condo,'' Page D1.)
The pressure from banks to provide more collateral or pay down loans on his real estate projects intensified in 1990.
So Gibson and his partners turned to smaller banks that had not yet provided them with credit. In fact, it was an attempt by one of the smaller banks to recover a loan that triggered Gibson's bankruptcy filing last November.
Having gotten a judgment against Gibson and partner to recover a $300,000 loan, lawyers for Chesapeake National Bank were preparing last November to depose Gibson about his financial situation and sources of income. Put on notice from the bank's lawyers that he should bring canceled checks, tax returns, promissory notes and other documents to the deposition, Gibson filed for bankruptcy on Nov. 10.
Half of the $29.9 million of liabilities listed on his bankruptcy filing involve bank loans, including $5.27 million from Branch Bank & Trust Co. in Wilson, N.C.
A BB&T spokesman declines to say whether the bank expects to recover its loans to Gibson. The quality of BB&T's assets has been improving, and ``there is nothing in our financial statements that indicates any large problems for us,'' Gloyden Stewart, a spokesman for the bank, says.
Burch of Chesapeake National says the bank expects to recover part of its claim against Gibson by selling a parcel of undeveloped land that had been collateral. ``We're hoping to salvage some of that $300,000 from the sale of property but it won't be anywhere close'' to the amount owed, he says.
And one institution, NationsBank, has jettisoned some of its loans for Gibson-related projects by selling the notes to an investment concern in Northern Virginia in late 1992.
Gibson admits that financial problems have strained relations with some of his friends and business associates. But interviews with several individuals who have worked with him or done business with him indicate that Gibson still enjoys an enormous reservoir of goodwill in Hampton Roads.
While questioning the logic of some of Gibson's real estate decisions, one local developer says he continues to hold the retired banker in high regard. When he was a banker, Gibson stood by him during a rough stretch when he needed financial help, this developer says.
As chief executive officer of Dominion Bank, Gibson could be mercurial, recalls Stuart R. Bryant, who worked with Gibson for 15 years and succeeded him as CEO of the bank. ``Sometimes he was tough to work with,'' Bryant says, ``but he gave opportunity and rewards to whoever could deliver the goods, and I appreciated that.''
What stood out, says Bryant, was Gibson's effort to deliver the best service he could to Dominion Bank customers. ``He took all of his own calls, and he would ask, `How do we get this thing done?' rather than think of nine reasons why we couldn't do it.''
One demonstration of loyalty to Gibson was the response to a recapitalization effort at Resource Bank in Virginia Beach in late 1992.
The bank had suffered chronic losses and needed capital desperately when Gibson, Bernhardt, and Lawrence N. Smith, a local banker, devised a restructuring plan for Resource. The trio were able to raise $3.5 million of fresh capital relatively quickly through a public stock offering.
Gibson, who became a director of the bank during its restructuring, stepped down from the board last year.
Compared with many individuals who end up using Chapter 7 bankruptcy to wipe out their debts, Gibson is in good financial shape. His $80,000 of annual retirement income, most of it from a Dominion Bank pension, is exempt from liquidation in bankruptcy court. And his riverfront residence in Norfolk is owned by his wife, Mary.
Gibson, however, says he's pained by a comparison with the financial pressures that his grandfather faced during the Great Depression of the 1930s. His grandfather, and namesake, lost his plantation in eastern North Carolina, a lumber business and a construction business to creditors without resorting to bankruptcy, Gibson says.
A gatepost on the lane to his home bears a brass plaque, a reminder of what his grandfather endured,Gibson says. The plaque, about the size of a file folder, bears the words ``Iron Mine,'' the name of his ancestor'sDuplin County plantation. Inside the house, Gibson keeps a copy of a 1920 map of the plantation, which was eventually broken up.
What has provided him with the stamina to deal with bankruptcy, says Gibson, was a lifetime of challenges, including service aboard ships during two wars and surviving two plane crashes.
A native of rural eastern North Carolina, Gibson graduated from the U.S. Merchant Marine Academy at King's Point, N.Y., during World War II and served aboard ship until 1946.
After leaving the merchant marine, he worked as a research clerk for a steamship agency in San Francisco and then for International Harvester Co., the farm-machinery manufacturer. Three years later, Gibson moved to Dallas, where he took a managerial post with another manufacturer of farm implements.
When the Korean War broke out in 1950, Gibson was called into the Navy and ordered to take a newly commissioned ship from Texas to Norfolk. As navigator and operations officer of the dock landing ship, Gibson sailed twice to Greenland before the war ended.
On both cruises, he used the ship's library to study literature and philosophy. ``While they were equipping the ship, someone put one hell of a library aboard,'' Gibson recalls. ``It wasn't a rare-book room, but it had some of the best titles, so I read and read.''
In 1952, Gibson enrolled at the University of North Carolina, where he earned a master's degree in English literature. Although he had considered remaining in Chapel Hill, N.C., to pursue a doctorate, Gibson departed for a teaching post at the College of William and Mary in Williamsburg.
Gibson intersperses the details of his military service, education and banking career with recollections of deals and near-deals: traveling to Provincetown, Mass., on behalf of the city of Norfolk and urging Walter Chrysler Jr. to leave his art collection in Norfolk; bringing a member of the Pritzker family, the Chicago hotel developers, to Norfolk and suggesting he build a hotel in the city's downtown.
Amid the torrent of anecdotes, Gibson acknowledges that he should have been more attuned to the problems unfolding during the late 1980s in the commercial real estate arena.
Developers had been using overly optimistic projections of rents and room rates for their projects. And bankers, hungry for juicy fees and rapid advancement, provided construction financing without doing adequate research. This combination fostered an explosion of office space, shopping-center space and hotel rooms that would take years to absorb.
``If I was so damned smart, why didn't I do something?'' Gibson asks. ``The biggest mistake I made was not jumping on this earlier and sitting down with lenders.''
But Gibson does not dwell on what might have been. From a modest office in Newport News decorated with a few golfing mementoes, he is laying the groundwork for three new ventures. Confidentiality agreements, he says, bar him from divulging any details about these businesses.
His filing for bankruptcy, he admits, will restrict his ability to borrow money for new ventures. Yet it's clear that years of wrestling with creditors have not dampened Gibson's exuberance or his appetite for putting together deals.
``My detractors will tell you that `Gibson's worst problem is his enthusiasm,' '' he says,``but my enthusiasm has carried me a long way.''
{KEYWORDS} BANKRUPTCY PROFILE
by CNB