Mortgages Ltd. empire is built, then crumbles

[Source: Catherine Reagor and Andrew Johnson, Arizona Republic] — Mortgages Ltd. has gone in less than two years from being Arizona’s largest private commercial real-estate lender to a company plunged into bankruptcy following the suicide of its CEO, Scott Coles.  Along with questions raised by the suicide, Mortgages Ltd.’s dramatic fall raises the business question of why a firm holding $900 million in high-interest commercial loans suddenly had to borrow money to stay afloat.  Some borrowers and investors have wondered whether illegal investment practices, a Ponzi scheme, or bad record keeping could have played a role.

The Arizona Republic has tracked the arc of Mortgages Ltd.’s financial plummet through months of interviews, court testimony, and thousands of documents.  The company’s undoing was the result of heavy investment in a falling market, investors pulling out, and a shortfall of cash.  The collapse has cut off payments to thousands of panicked investors and stalled several of the Valley’s biggest commercial projects.  

The Metro LoftsThe problems started quietly.  In early 2006, as metropolitan Phoenix’s housing market showed early signs of slowing, Coles continued to pour hundreds of millions of dollars into residential developments, which included Chandler’s first high-rise and a tower on Phoenix’s Central Avenue that would have rivaled the state’s tallest skyscraper (rendering at right).  A year later, the Valley’s housing market was clearly in a downturn: A glut of new homes with no buyers.  Falling home prices.  Struggling home builders.

Coles did not slow down.  He put almost $50 million into Chateaux on Central’s brownstone mansions in central Phoenix and committed to more than $150 million for the high-end high-rises at Centerpoint in Tempe’s Mill Avenue district.   “I can’t figure out how Mortgages Ltd. decided to fund the condo projects it did when it did,” said Eric Brown, founder of the Artisan Lofts in Phoenix and an analyst with national real-estate consultants Robert Charles Lesser & Co.  “The timing was bad for most new housing developments.” [Note: To read the full article, click here.]

One thought on “Mortgages Ltd. empire is built, then crumbles”

  1. From our perspective, clearly one of the problems was investing in deals that flat out did not make sense.

    My team and I looked at Chateaux on Central in late 2005, about the time they were breaking ground. At that time, only four units had been sold and that was after approximately 12 months of pre-construction sales (apparently there had been 15 or so more “reservations” but everyone dropped out).

    We could not understand why a developer would move forward with construction when the market had so clearly rejected the product.

    Sure, I like the unique look and design but the prices were outrageous and many people suffered for the “irrational exuberance” of the developer and apparently Mortgages Ltd.

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