<SEC-DOCUMENT>0000950123-10-087574.txt : 20110314
<SEC-HEADER>0000950123-10-087574.hdr.sgml : 20110314
<ACCEPTANCE-DATETIME>20100920211648
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000950123-10-087574
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20100920

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMERICAN REALTY INVESTORS INC
		CENTRAL INDEX KEY:			0001102238
		STANDARD INDUSTRIAL CLASSIFICATION:	REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510]
		IRS NUMBER:				752847135
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		1800 VALLEY VIEW LANE
		STREET 2:		SUITE 300
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
		BUSINESS PHONE:		4695224200

	MAIL ADDRESS:	
		STREET 1:		1800 VALLEY VIEW LANE
		STREET 2:		SUITE 300
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
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<TITLE>corresp</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 14pt; margin-top: 18pt">METZGER &#038; McDONALD PLLC
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 0pt"><FONT style="FONT-variant: SMALL-CAPS">A PROFESSIONAL LIMITED LIABILITY COMPANY</FONT><br>
<FONT style="FONT-variant: SMALL-CAPS">ATTORNEYS, MEDIATORS &#038; COUNSELORS</FONT>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
</TR>
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><FONT style="FONT-variant: SMALL-CAPS">Steven C. Metzger</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="FONT-variant: SMALL-CAPS">3626 N. Hall Street, Suite&nbsp;800</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><FONT style="FONT-variant: SMALL-CAPS">Direct Dial 214-740-5030</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="FONT-variant: SMALL-CAPS">Dallas, Texas 75219-5133</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><FONT style="FONT-variant: SMALL-CAPS">Facsimile 214-224-7555</FONT></TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><FONT style="FONT-variant: SMALL-CAPS">smetzger@pmklaw.com</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="FONT-variant: SMALL-CAPS">214-969-7600</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><FONT style="FONT-variant: SMALL-CAPS">214-523-3838</FONT></TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="FONT-variant: SMALL-CAPS"><u>www.pmklaw.com</u></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><FONT style="FONT-variant: SMALL-CAPS">214-969-7635</FONT></TD>
</TR>
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    <TD>&nbsp;</TD>
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<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">September&nbsp;20, 2010</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
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</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Via EDGAR
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Securities and Exchange Commission<BR>
100 F Street, N.E.<BR>
Washington, D.C. 20549<BR>
Attn: Jessica Baberich, Assistant Chief Accountant<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wilson K. Lee, Staff Accountant

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">Re:</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>American Realty Investors, Inc. (Commission File No.
001-15663; CIK No.&nbsp;0001102238) &#151; Form&nbsp;10-K for the fiscal year ended
December&nbsp;31, 2009 filed on March&nbsp;31, 2010</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Ladies and Gentlemen:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On behalf of American Realty Investors, Inc., a Nevada corporation (&#147;ARL&#148;) this
letter is being filed as correspondence uploaded on the EDGAR system on behalf of
ARL in response to a letter of comment from the Staff of the Securities and Exchange
Commission dated August&nbsp;27, 2010. Schedule&nbsp;1 annexed to this letter contains the
responses to the comments of the Staff. In each instance on such Schedule, for
convenience, each comment of the Staff is repeated, followed in each instance by the
applicable response to such comment or explanation. Also included in such response,
where appropriate, is a letter/page reference to the text to the applicable document
or instrument referred to in the comment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This letter is being filed under the EDGAR system in direct response to the
comments of the Staff. If you would like to discuss any item concerning the
referenced matter included in this letter or Schedule&nbsp;1, please do not hesitate to
contact the undersigned at any time at 214-740-5030 direct or Gene S. Bertcher,
Executive Vice President and Chief Financial Officer of ARL at 469-522-4238 direct.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Very truly yours,<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Steven C. Metzger
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Steven C. Metzger&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">cc:</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gene S. Bertcher<br>
Executive Vice President and Chief Financial Officer<br>
American Realty Investors, Inc.<br>
1800 Valley View Lane, Suite&nbsp;300<br>
Dallas, Texas 75234</TD>
</TR>



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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SCHEDULE 1</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Response to Comments of the Staff of<BR>
The Securities and Exchange Commission<BR>
by letter dated August&nbsp;27, 2010 with respect to<BR>
Form 10-K for the fiscal year ended December&nbsp;31, 2009<BR>
American Realty Investors, Inc.<BR>
Commission File No.&nbsp;001-15663</B>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="FONT-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following information is to provide a response to comments of the Staff of the Securities
and Exchange Commission rendered by letter dated August&nbsp;27, 2010 with respect to Form 10-K Annual
Report to the Securities and Exchange Commission for the fiscal year ended December&nbsp;31, 2009 of
American Realty Investors, Inc. (the &#147;Company&#148; or &#147;ARL&#148;). For convenience, each comment of the
Staff is restated below, with our response noted immediately following the comment. Also included
in such response is a letter/page reference to the text of each instrument where applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Form&nbsp;10-K for the Year Ended December&nbsp;31, 2009</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Financial Statements and Notes</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Note 2 &#151; Real Estate, pages 52 &#150; 54</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Comment/Observation No.&nbsp;1. </B>We have considered your response to comment one and
note that you have concluded that LK-Four Hickory, LLC (LKFH)&nbsp;is not a variable interest entity and
that ARL would not be the primary beneficiary if it were a VIE. Please provide us with a detailed
analysis supporting your conclusion that LKFH is not a VIE. As requested in our prior comment,
please specifically discusss your retained risk and obligations compared to your proportionate
interest in LKFH. Also, please provide us with the analysis supporting your conclusion that ARL
would not be the primary beneficiary if it were a VIE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Response to Comment/Observation No.&nbsp;1. </B>Attached (exhibit 1) is the analysis supporting the
conclusion that LK-Four Hickory, LLC (&#147;LKFH&#148;) is not a VIE. Further analysis (exhibit 2) concludes
that American Reality Investors, Inc. (the &#147;Company&#148;) would not be the primary beneficiary if LKFH
were a VIE. Included in the analysis is a discussion of the retained risks and obligations
compared to the proportionate interest in LKFH. Based on the analysis, it is believed that the
question of consolidation of LKFH is not appropriate or required and it is reiterated that the
question of consolidation is not material to the financial statements of the Company, whether as a
VIE or not. At December&nbsp;31, 2009, the Company had total assets of $1.8&nbsp;billion and total equity of
$211&nbsp;million. LKFH had assets of $40&nbsp;million, liabilities of $29&nbsp;million and equity of $11
million. ARL had an equity investment in LKFH of approximately $4&nbsp;million. Since the Company
accounts for its investment in LKFH on the equity method, ARL&#146;s equity in earnings of LKFH is
already included in ARL&#146;s financial statements. Therefore, if LKFH were consolidated with the
Company, the effect would be an increase in total assets and liabilities (including minority
interest) of $36&nbsp;million or approximately 2% with no effect on net income or shareholder&#146;s equity.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Comment/Observation No.&nbsp;2. </B>We note from your response that there are no provisions
or other items that extend your risks beyond your initial investment plus or minus your 29% equity
in earnings to date. Please confirm that the operating agreement explicitly caps your exposure to
perform on any of the outlined terms to your investment interest in the entity and that you have no
obligation to perform under these terms if your investment is reduced to zero.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Response to Comment/Observation No.&nbsp;2. </B>The Operating Agreement of LKFH explicitly states in
Section&nbsp;6.6 that &#147;No member shall be liable for the debts, liabilities, or obligations of the
Company beyond such Person&#146;s respective Capital Contributions.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Comment/Observation No.&nbsp;3. </B>In addition as requested in our prior comment, please
tell us the consequences to you should you default on any of your obligations to LKFH.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Response to Comment/Observation No.&nbsp;3. </B>The maximum consequences, should the Company default
on any of its obligations to LKFH, is forfeiture of the 29% membership interest and the $4&nbsp;million
capital contribution as adjusted by the equity in earnings to date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Comment/Observation No.&nbsp;4. </B>Please advise us of the impact, if any, the adoption of
ASU 2009-17 had on your evaluation of this entity for consolidation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Response to Comment/Observation No.&nbsp;4. </B>The adoption of ASU 2009-170 on January&nbsp;1, 2010 had no
effect on the Company&#146;s conclusion that LKFH is not a VIE and not subject to consolidation. ASU
2009-17 also has no effect on the conclusion that the issue is not material to the financial
statements of ARL.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Comment/Observation No.&nbsp;5. </B>We have considered your response to comment two and
note that you have concluded that the guarantees you have provided regarding operating shortfalls
and changes in mortgage interest rates do not constitute retention of substantial risk and rewards
of ownership because you consider the guarantees contingent in nature and remote in probability.
Please cite the guidance in GAAP you relied upon which supports your conclusion which is based on
probability of performance. In addition, you state that the terms of the LKFH operating agreement
indicate that ARL is exposed to first dollar losses but that exposure is limited to ARL&#146;s
investment of $4&nbsp;million; thus, it appears that there is a limit on your continuing involvement
obligation. Please specifically tell us what consideration you gave to this maximum exposure to
loss when determining the appropriate amount of gain to record at the time of sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Response to Comment/Observation No.&nbsp;5. </B>As stated above, ARL&#146;s exposure to future losses or
obligations is limited to its $4&nbsp;million equity investment. The operating shortfall and interest
rate adjustment provisions are limited under this provision. Due to the immaterial amounts
involved and the remote probability of performance, ARL does not consider these items retention of
substantial risks or rewards of ownership. The Company applied &#147;Accounting for Contingencies&#148;
(SFAS No. 5 / ASC 450) by analogy, which states that remote contingencies not reasonably estimated
are not subject to accounting recognition or disclosure. The recording of deferred gain in this
instance would be in essence recording inestimable remote contingencies in opposition to SFAS No.
5. Therefore, these items are not considered substantial elements of retained risk or rewards of
ownership, and therefore, have no effect on the amount of gain recognition in these circumstances.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">American Realty Investors, Inc.<BR>
Evaluation of LK-Four Hickory, LLC as a Variable Interest Entity (&#147;VIE&#148;)<BR>
December&nbsp;31, 2009<BR>
Exhibit&nbsp;1

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Does the reporting entity, American Realty Investors, Inc. (&#147;ARI&#148;) have arrangements with
the entity, LK-Four Hickory, LLC ( &#147;LKFH&#148;) that meets the definition of a business for which
any of the four conditions listed below exist?</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The reporting entity, its related parties, or both, participated significantly in the
entity&#146;s design or redesign. <B>Yes</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>By its design, substantially all of the entity&#146;s activities either involve or are
conducted on behalf of the reporting entity and its related parties. <b>No</b></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The reporting entity and its related parties provide more than half of the total of the
equity, subordinated debt, and other forms of financial support to the entity. <b>No</b></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The entity&#146;s activities are primarily related to securitizations or other forms of
asset-backed financing agreements or single-lessee leasing arrangements. <B>No</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If yes, go to step 2.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, further consideration of FIN 46 is not required.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Is the entity with which the reporting entity has an arrangement a legal
entity? <B>Yes</b> <BR><BR style="font-size: 6pt">
<b>If yes, go to step 3.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, further consideration of FIN 46 is not required.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Do any of the other scope exceptions in FIN 46 apply to the other entity (Para. 4 of FIN 46)?
<b>No</b> <BR><BR style="font-size: 6pt"><B>If no, go to step 4.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If yes, further consideration of FIN 46 is not required.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Is it apparent that the reporting entity&#146;s interest in the other entity would not be a
significant variable interest and neither the reporting entity nor its related parties and
de facto agents participated significantly in the design or redesign of the other entity
(Para 6 of FIN 46)? <B>ARI&#146;s interest is not significant but ARI did participate in the design
of LKFH.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If no, go to step 5.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If yes, Further consideration of FIN 46 is not required.</TD>
</TR>





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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Does the reporting entity have an explicit or implicit variable interest in the other
entity? &#091;<I>Para. 2.c. of FIN 46 </I>and <I>FSP FIN 46(R)-5</I>&#093;? <B>Yes, the operating short fall agreement
and possibly others. The operating shortfall agreement, while a variable interest, is only
remotely expected to effect ARI&#146;s proportional interest in LKFH and only in an insignificant
amount. Other possible variable interests are considered remote in nature.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If yes, go to step 6.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, further consideration of FIN 46 is not required.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>DETERMINING WHETHER LKFH IS A VARIABLE INTEREST ENTITY</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>By design, is the level of equity investment at risk in the entity sufficient to permit the
entity to operate on its own without additional subordinated
financial support? (<I>Para. 5.a.
of FIN 46</I>) <B>Yes</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&nbsp;</B></TD>
    <TD width="1%"><B>&nbsp;</B></TD>
    <TD><B>Entity has demonstrated that it can finance its activities without additional
subordinated financial support.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&nbsp;</B></TD>
    <TD width="1%"><B>&nbsp;</B></TD>
    <TD><B>The entity has at least as much equity invested as other entities that hold only
similar assets of similar quality in similar amounts and operate with no additional
subordinated financial support.</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If yes, go to step 7</B>.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, the entity is a VIE. Go to step 11.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>By design, do the holders of the equity investment at risk, as a group, have the direct or
indirect ability to make decisions about the entity&#146;s activities that significantly impact
the entity&#146;s success? &#091;<I>Para. 5.b.(1). of FIN 46</I>&#093; <B>Yes, the equity holders have direct ability
to make decisions regarding the entity through voting rights.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If yes, go to step 8.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, the entity is a VIE. Go to step 11.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>By design, do the holders of the equity investment at risk, as a group, have the obligation
to absorb the entity&#146;s expected losses? &#091;<I>Para. 5.b.(2). of FIN 46</I>&#093; <B>Yes, by design, the
equity holders absorb all the expected losses.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If yes, go to step 9.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, the entity is a VIE. Go to step 11.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">9.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>By design, do the holders of the equity investment at risk, as a group, have the right to
receive the entity&#146;s expected residual returns? &#091;<I>Para. 5.b.(3). of FIN 46</I>&#093; <B>Yes, by design,
the equity holders receive all the expected residual returns.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If yes, go to step 10.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, the entity is a VIE. Go to step 11.</TD>
</TR>





</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>By design, do some of the equity investors in the entity have disproportionate voting
rights compared to their economic interests and do substantially all of the entity&#146;s
activities involve, or are they conducted on behalf of, an investor with a disproportionately
small voting interest? (<I>Para. 5.c. of FIN 46</I>) <B>No, the equity investors have proportionate
voting rights compared to their economic interests and the activities of the entity are
conducted on behalf of both investors proportionate to their equity interests and voting
rights.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If no, entity is not a VIE. Further consideration of FIN 46 is not required.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If yes, the entity is a VIE. Go to step 11.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CONCLUSION: LKFH is not a VIE.</B>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">American Realty Investors, Inc.<BR>
Evaluation of LK-Four Hickory, LLC as a Variable Interest Entity (&#147;VIE&#148;)<BR>
December&nbsp;31, 2009<BR>
Exhibit&nbsp;2

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>In the interest of being conservative, the following analysis was performed.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DETERMINING THE NATURE OF THE RELATIONSHIP WITH THE POTENTIAL VIE</B>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">11.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Do related parties, de facto agents, or de facto principals of the reporting entity also have
variable interests in the VIE? <B>Yes</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If yes, go to step 12.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If no, go to step 14.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">12</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the variable interests in the VIE held by the reporting entity and its related parties
were combined and held by a single party, would that party be the primary beneficiary of the
VIE? <B>No, analysis concludes that the 71% owner, LimKwang Nevada, Inc. (&#147;LK Nevada&#148;) would be
the primary beneficiary in LKFH if it were a VIE in that it will absorb the majority of the
expected losses and residual gains of the entity.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If yes, go to step 13.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If no, consolidation is not required. Go to step 15.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">13.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Is the reporting entity the member of the related-party group that is most closely
associated with the VIE? <B>No, American Reality Investors, Inc. is not most closely associated
with LKFH.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If yes, consolidation is required.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If no, consolidation is not required. Go to step 15.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">14.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In situations where related parties, de facto agents, or de facto principals of the
reporting entity do not have additional variable interests in the VIE, is the reporting
entity the primary beneficiary of the VIE? (<I>Paras. 14&#151;15 of
FIN 46</I>) <B>No, ARI would not the
primary beneficiary of LKFH if it were a VIE</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If yes, consolidation is required.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If no, consolidation is not required. Go to step 15.</B></TD>
</TR>





</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">15.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Does the entity hold a significant variable interest in a VIE without being the primary
beneficiary? (<I>Para. 24 of FIN 46</I>) <B>N/A, because LKFH is not
a VIE, but if it were, ARI&#146;s
interests are not significant.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If yes, consolidation is not required. However, the reporting entity must include certain
disclosures related to it&#146;s investment in the VIE.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>If no, further consideration of FIN 46 is not required</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CONCLUSION: ARI would not be
the primary beneficiary if LKFH was a VIE.</B>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>




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