[Source: Jan Buchholz, Phoenix Business Journal] — A blockbuster plan to create a downtown Phoenix entertainment district is in jeopardy as the lender filed a notice of trustee sale on several of the properties involved. At the same time, three major Valley high-rise condo projects are poised for major court dates that could dramatically affect their future viability.
ML Manager LLC, the company created to administer the loans of Mortgages Ltd. following its Chapter 11 bankruptcy reorganization, filed a notice of trustee sale March 17 on several parcels that would have formed the core of the proposed Jackson Street Entertainment District. The auction is scheduled for June 17. SOJAC I LLC, headed by former co-owner of the Arizona Diamondbacks, Dale Jensen, was the entity that borrowed $24.2 million from Mortgages Ltd. in February 2007 to purchase properties on Third, Fourth, Buchanan, and Lincoln streets. [Note: To read the full article, click here.]
[Source: Milwaukee Business Journal] — Main Street Ingredients, a La Crosse company that manufactures and distributes food-processing ingredients, has been selected to buy the “opulent” Chateaux on Central brownstone project in Phoenix for $7 million. The unfinished residential development at the northwest corner of Central Avenue and Palm Lane has been financially troubled since construction started in 2005. All forward movement stopped when the lender, Mortgages Ltd., took it back in 2008 shortly before that company was forced into Chapter 11 bankruptcy protection.
Mark Winkleman, chief operating officer of ML Manager LLC, said MSI West Investments LLC submitted the winning bid for the Chateaux. Closing on the property is scheduled for Friday. ML Manager is the court-approved entity administering the Mortgages Ltd. loan portfolio in the wake of the lender’s bankruptcy. The Chateaux is one of the first Mortgages Ltd. properties to be sold off.
Dave Clark, CEO of Main Street Ingredients of La Crosse, confirmed that his company is behind the winning bid. Main Street recently created MSI West, a limited-liability company registered with the Arizona Corporation Commission. The company has purchased real estate in other states and started looking around the Phoenix area last year. “We like what we see in downtown Phoenix,” Clark said. “We feel this will be a good investment, but we’re not here to turn a dollar.”
The project was designed as 21 five-story residences with private elevators and rooftop terraces. The announced prices ranged from $2.8 million to $4.5 million per unit, but none were sold. Desert Hills Bank provided the first construction loan, but the relationship soured when the bank filed a lien on the property. The late Scott Coles, then CEO of Mortgages Ltd., stepped in to salvage the project, but Coles committed suicide on June 2, 2008, thrusting the entire Mortgages Ltd. loan and property portfolio into limbo. Within a month of Coles’ death, several borrowers forced Mortgages Ltd. into Chapter 11 bankruptcy.
[Source: Jahna Berry, Arizona Republic] — A downtown Phoenix 1931 bank building that was entangled in Mortgages Ltd.’s collapse appears headed for foreclosure. The 12-story Professional Building at 15 E. Monroe Street is scheduled to be auctioned on April 20, according to a notice of trustee sale filed at the Maricopa County Recorder’s Office. The notice is the first step in the foreclosure process. Thirteen investors are owed $76.5 million, according to the notice. The largest share is owed to a court-appointed entity that is managing the remainder of lender Mortgages Ltd.’s assets.
Phoenix-based Mortgages Ltd., helmed by the late Scott Coles, was once considered Arizona’s largest private commercial lender. The firm ran into trouble when the real estate market crashed, the firm couldn’t raise new capital from investors and couldn’t meet some of its loan obligations. When Mortgages Ltd. went bankrupt, developer Grace Communities was transforming the former home of Valley National Bank into an upscale 150-room boutique hotel called Hotel Monroe. Construction stopped and the partially-renovated building sits empty near Central Avenue and Monroe Street.
[Source: Jon Talton, Rogue Columnist] — It’s surprising that some appear so sanguine about the likely foreclosure of most units at the 44 Monroe condo tower. This, along with a similar fate for the Summit at Copper Square and 44’s developer Grace Communities failing to rehab the historic Valley National Bank building because of the Mortgages Ltd. fiasco, represents a devastating setback for luring private investment into downtown Phoenix. Maybe people are too shell shocked to take it all in. Maybe they’re willing to settle for things being better than they were 20 years ago, which is undeniably true. Neither option is wise for those who wish the central city well.
Make no mistake: the Phoenix depression is metro-wide. I saw rotting framing and miles of distressed subdivisions out in the exurbs. Tempe foolishly threw away its opportunity to build a mid-rise boutique downtown of national quality — now it has an empty condo high-rise and Mill Avenue is swooning again. But my conviction remains that there is no healthy major city without a strong urban downtown, and center city problems left unchecked have a habit of spreading. (And don’t be taken in by the propaganda: Phoenix did have a vibrant downtown — it was killed by civic malpractice).
In Phoenix, the past few years have seen some notable triumphs: the beginnings of a downtown ASU campus, light rail, a convention center worthy of such a tourist-dependent city, a new convention hotel, and a blossoming of independently owned restaurants. The biosciences campus has been planted (although it has been allowed to stall and, I fear, its future is uncertain). Yet major private investment has not followed; 44 Monroe and the Summit represented the strongest chance for that within the existing local business model of “real estate first.” The many towers proposed for the entire Central Corridor are now blighted empty lots. CityScape? I’ll believe it when I see it. What I see is a homely suburban design, not the soaring “game changer” sold to the public on the front page of the newspaper.
The great recession, the great reset: Where will they leave downtown Phoenix and the Central Corridor? It’s tough all over, now that a commercial real-estate crisis will follow the explosion of the residential and mortgage bubble. Nationally, suburbs and exurbs are being hit harder than downtowns. Suburban poverty is spreading. The massive destruction of wealth and overhang of leverage make restarting the sprawl machine of old impossible. Smart places, such as Denver, are trying to retrofit the suburbs for a higher energy future. Some suburbs themselves are working to provide walkable, mixed-use and even urbanish neighborhoods.
The headwinds in Phoenix are different. Most people have blinkered suburban values — they can’t imagine a different life. City Hall’s decisions to clear-cut hundreds of buildings and drive out businesses that catered to the working poor have left Phoenix without the bones that other cities have used to revive their cores. The old headquarters companies were bought or dismembered and their successors often keep only token presences in downtown (imagine, for example, if Wells Fargo had built its operations center downtown instead of in Chandler). And the limited economy leaves few non-real estate businesses anyway. I could go on, but what can be done now, in the reset? [Note: To read Jon’s recommendations, click on Downtown Phoenix 2.0?]
[Source: Sarah Fenske, Phoenix New Times] — There’s a development on the edge of downtown Phoenix that captivated me even before I moved into the neighborhood: the Chateaux on Central. My interest wasn’t a matter of good design — everyone from Will Bruder on down is on the record mocking the place, and rightly so. (With its fanciful turrets, shiny copper roofs, and that ghastly faux-French “eaux,” the project’s overall effect is Disney Does Brownstones in the Desert.) No, the Chateaux on Central were somehow personally evocative. They made me homesick. [Note: Read the full article at Phoenix Interrupted: Downtown’s full of gleaming progress surrounded by vacant lots – now what?]
[Source: Catherine Reagor, Arizona Republic] — The brick mini-mansions sitting empty on Phoenix’s Central Avenue is first on the New York Time’s list of “Ruins of the Second Gilded Age.” The newspaper commissioned a photographer to go across the country and capture physical evidence” of the real estate bust.
Phoenix’s Chateauxs were supposed to sell for more than $4 million and be topped with copper turrets. But in late 2007, PHX Partners — developer of the unusual project project — filed for bankruptcy. Phoenix-based commercial lender Mortgages Ltd. then financed the project and took it over through foreclosure. In mid-2008, Mortgage Ltd. was forced into bankruptcy. Chateaux is a high-priced, nearly built castle-esque ghost town on Central Avenue now.
A Charlevoix Homes subdivision in Chandler was no. 2 on the Time’s list. President of the home builder Michael Roberts filed for bankruptcy last year. The subdivision sits half built. [Note: To read the full blog post, click here.]
[Source: Andrew Johnson, Arizona Republic] — A judge approved part of a settlement Tuesday between Mortgages Ltd. and a real-estate developer that had threatened to sue the bankrupt lending firm for shorting it $100 million in constructing financing. The ruling answered a few questions about Mortgages Ltd.’s authority to negotiate deals that could affect the position of its 2,700 investors, who were the Phoenix-based company’s primary funding source. In an oral ruling, Judge Randolph Haines granted Mortgages Ltd.’s proposal to revise terms for a loan that KML Development obtained to build a high-rise condo tower at the northwest corner of University Drive and Ash Avenue in downtown Tempe. KML’s loan was supposed to be for $130 million. Mortgages Ltd. has admitted to funding only $30.3 million of the amount. Under the settlement, the outstanding principal due on that loan is reduced to $14.9 million. That is because the difference was never funded to the borrower. The settlement also allows for a five-year window within which development can commence. Project plans discussed in court call for high-end student housing to be built at the site.
However, Haines rejected portions of the settlement that would have revised repayment terms for two other loans worth a combined $13.1 million that KML borrowed to buy land in downtown Phoenix. One of those loans, worth $7 million, was to buy land in downtown Phoenix at Roosevelt and Third streets. The other loan, for $6.1 million, was to acquire nearby land for a mixed-use project. Allowing such a settlement would have been unfair to investors in those two loans, which Mortgages Ltd. fully funded and are now due for repayment, Haines said.
Investors fronted Mortgages Ltd. about $925 million to make loans to mostly commercial real-estate developers prior to the firm’s involuntary bankruptcy filing in June. Their rights have been a focal point throughout the case. Attorneys for some investors opposed the settlement. They argued that the agreements investors signed when giving money to Mortgages Ltd. do not give them the right to change terms of a loan without investors’ consent. Haines, however, said that even if investors withheld their consent for Mortgages Ltd. to alter deals, as some of have tried to do, that does not mean they were withholding Mortgages Ltd.’s right to continuing making decisions regarding loan terms for the other investors the company acted as an agent for.
Mortgages Ltd. is currently trying to negotiate settlements with other borrowers. Among them are the developer of the stalled Centerpoint condo towers in downtown Tempe and the developer of the stalled Hotel Monroe project in downtown Phoenix.
[Source: Andrew Johnson, Arizona Republic] — Attorneys for investors in construction lender Mortgages Ltd. expressed skepticism during a bankruptcy hearing Tuesday about a settlement the company wants to enter with a development firm that borrowed money for condominium projects. Mortgages Ltd. attorneys say settling with KML Development is in the best interest of the nearly 500 investors who put up about $43 million for numerous loans to the borrower.
KML planned to build mixed-use condo towers in downtown Phoenix and Tempe. The company borrowed loans from Phoenix-based Mortgages Ltd. under the names University and Ash LLC, Roosevelt Gateway LLC, and Roosevelt Gateway II LLC for development costs. [Note: To read the full article, click here.]
[Source: Andrew Johnson, Arizona Republic] — Investors’ rights have been a long-standing issue in the bankruptcy of Phoenix-based Mortgages Ltd. Former Managing Director Robert Furst testified in U.S. Bankruptcy Court that Chairman and Chief Executive Officer Scott Coles made the decision to alter an investors agreement to give Mortgages Ltd. more flexibility to bring in new investors as first lien holders ahead of existing investors.
Furst said he worked for Mortgages Ltd. from October 2005 to March 2008, when he quit. He testified unexpectedly on a proposed loan extension Mortgages Ltd. was offering local real-estate developer Dale Jensen. Jensen’s firm, SOJAC I LLC, has an approximately $24 million loan with Mortgages Ltd. for the development of a proposed entertainment district on Jackson Street in downtown Phoenix. Furst said he wanted more information about Jensen’s finances before a judge approved the extension.
Jensen was current on interest payments but the loan principal came due in late September. Because of turmoil in the credit markets, he likely wouldn’t be able to secure financing to pay off the balance, said his attorney, Don Gaffney. SOJAC wanted to have the loan-maturity date extended a year. Judge Randolph Haines ultimately approved the extension, calling it a reasonable deal. [Note: To read the full article, click here.]
[Source: Arizona Republic from U.S. Bankruptcy Court records] — Bankrupt construction lender Mortgages Ltd. has reached settlements with seven developers that account for more than one-half the company’s $925 million loan portfolio. Under the agreements, Mortgages Ltd. will subordinate investor interest, find additional capital for certain borrowers, and reduce interest rates for others. The borrowers agree to drop pending lawsuits against the company.
- SOJAC I LLC — Proposed Jackson Street Entertainment District in downtown Phoenix.
- MK Custom Residential Construction LLC — Various condo projects in central Phoenix.
- Grace Communities — Hotel Monroe in downtown Phoenix, X Wine Lofts in Scottsdale, and others.
- University & Ash LLC, Roosevelt Gateway LLC, Roosevelt Gateway II LLC — Various proposed condo developments in Phoenix and Tempe.
- Rightpath Ltd. Development Group LLC — Main Street Glendale near University of Phoenix Stadium.
- Avenue Communities LLC — Centerpoint Condominiums in Tempe
- Bisontown LLC — Residential communities.