Phoenix’s private real estate financiers now in the spotlight

[Source: Andrew Johnson, Arizona Republic] — For years, “hard-money” real-estate lenders have operated in relative obscurity, raising billions of dollars from investors to fund thousands of developments across Arizona.  The inner workings of such financiers, who charge high fees and interest on building projects that banks deem too risky, traditionally have been familiar only to developers and the lenders themselves.  The integral role they play in the Valley’s real-estate market has garnered increased attention as banks have reined in lending activity.

The high-profile case of Mortgages Ltd. also has brought more attention to the industry.  It was thrust into the spotlight with the June 2 suicide of its chairman and chief executive officer, Scott Coles.  Coles’ death occurred amid lawsuits brought by borrowers and just three weeks before a developer forced the company into bankruptcy.  Phoenix-based Mortgages Ltd. was considered Arizona’s largest, oldest and best-known private lender.  But the company is only one of dozens of hard-money lenders in Arizona that specialize in short-term, high-interest loans for real-estate projects.  The firms’ operators say they have seized a bigger piece of the construction-lending market because traditional banks and institutional players are on the sidelines.  Many are still actively soliciting funds from investors, who are vital to their ability to make loans.

But Mortgages Ltd.’s problems have caused some industry experts to question whether hard-money lenders are next in line to be hamstrung by the bad real-estate market.  Their lending and fundraising practices — largely unregulated — also have come under scrutiny in lawsuits by investors and developers.  “Our industry for many years was the Wild West,” said Jayne Hartley, managing director of Phoenix-based private lender Coppercrest Funding LLC.  [Note: To read the full article, click here.]

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