The crash of Arizona’s biggest commercial lender Mortgages Ltd. is still a nightmare for many.
The lender’s nearly $1 billion collapse and its CEO Scott Coles’ suicide in 2008 led to huge investor losses, too many foreclosures, a slew of lawsuits and fraud charges by regulators.
High-profile projects stalled, from condo towers in downtown Tempe to the redevelopment of a downtown Phoenix historic hotel that had a cameo in “Psycho.”
Many of the investors were well-known, including a few Phoenix Suns players and some high-profile CEOs, but there were also small investors who lost their life savings.
I can remember talking to retirees who put all their money into Mortgages Ltd. and were living off the double-digit returns until it failed. Some couldn’t even pay their A/C bills that summer. Others lost homes and had to move in with their children.
Developers lost properties and couldn’t pay employees.
Regulators went after a big Mortgages Ltd. investor with the cheeky name Radical Bunny for selling interests in loans illegally.
So many legal battles ensued from the lender’s collapse, lawyers are the only ones who really made any money.
It’s been more than eight years since Coles died and Mortgages Ltd. ended up in bankruptcy court. Most of the high-flying lender’s projects have now been sold and revived.
Many Mortgage Ltd. investors have received some of their money back.
Real-estate attorney and former Arizona State Land Commissioner Mark Winkleman took on the arduous job of untangling ownership of the Mortgages Ltd. properties and selling them for the highest prices.
“We have made about $100 million from property sales and another $100 million for investors from lawsuits,” he told me. “It hasn’t been easy, but we only have three properties left."
Of course, Mortgage Ltd. failed partly because of the real-estate crash, and as the economy and real-estate market worsened, it became harder to sell the properties.
Here's a rundown of some of the biggest sales in Mortgages Ltd.’s portfolio (not all the purchase prices or financing details are available because the original deals were so convoluted and became mired in lawsuits):
Centerpoint: The condominium towers in downtown Tempe were Mortgages Ltd.’s most high-profile project and most expensive. The lender funneled at least $150 million into the two high-rises. Cleveland-based Zaremba Group paid $30 million for the partially built project in 2011, completed the towers, turned them into rentals and renamed it West 6th.
Main Street Glendale: A 150-acre parcel across from the Arizona Cardinals' University of Phoenix Stadium in the West Valley that was touted as becoming a second downtown for Glendale is still vacant. Rightpath, led partly by former Danny’s Family Car Wash owner Danny Hendon, had plans to develop Main Street Glendale, but they fizzled. The prime site was sold to the Van Tuyl car dealership group for $7 million in 2012.
Hotel Monroe: The redevelopment of the historic Professional building into a boutique hotel was going to be a big coup for downtown Phoenix. The iconic “Psycho” building had been empty for decades when plans for it to become Hotel Monroe were announced during the boom. The project failed when financing from Mortgages Ltd. stopped. In 2013, Minneapolis-based CSM Loding paid $7.85 million for the building and turned it into a Hilton Garden Inn that opened last year.
Portales: The much-anticipated condo project, just north of Scottsdale Fashion Square, stalled almost 10 years ago. A big dust bowl on the 10-acre site was left until Dallas-based developer JLB Partners got control of the land in 2011. It developed the popular and pricey apartment complex called the Moderne on the site.
Mosaic: In Tempe, another condo high-rise was planned with a $130 million financing promise from Mortgages Ltd. The site on the northwest corner of University Drive and Ash Avenue has sat empty for the past decade. In 2014, Colorado-based Alberta Development paid $6.1 million for the land. In July, the Tempe City Council approved a nine-story development with a Whole Food Market for the corner.
Chateau on Central: Coles thought a central Phoenix million-dollar brownstone home development called Chateau on Central would draw luxury homebuyers. Mortgages Ltd. put almost $50 million into the project that sat half built and empty on Central Avenue during the crash. In 2010, Wisconsin-based MSI West Investments paid $7 million for the 21 homes with elevators and completed them. Now the brownstones are selling for seven-digit prices.
“It’s not that Mortgages Ltd.’s properties were bad, the problem was the amount Coles loaned on them,” Elliott Pollack told me. The well-known Arizona economist invested in Mortgages Ltd.
He said Coles would appraise a three-story building like it was a 20-story high-rise.
Mortgages Ltd. had been around for decades and steadily drew investors who could rely on returns of 10 percent or more from the hard-money lender.
Its investor list was impressive:
But its biggest investor, Radical Bunny, is the one that drew regulators' ire.
When Coles started to run into financial problems, he began to rely on the group that included his personal accountant Tom Hirsch as well as Harish Shah, Howard Walder and Berta “Bunny” Walder. So we at least know where the "Bunny" part of the group's name came from.
Coles began paying Radical Bunny 13 percent on almost $200 million in loans, while Mortgages Ltd. investors were getting 10 percent.
It was a house of cards that cost many, particularly the 900 individual Radical Bunny investors who thought they were investing in Mortgages Ltd. properties but weren’t. And because of that, they aren’t entitled to money from the recent sales.
The Securities and Exchange Commission filed security-fraud charges against Phoenix investment firm Radical Bunny and its four principals.
And the Arizona Corporation Commission found Radical Bunny fraudulently sold unregistered securities to its investors and ordered the group to pay back almost $190 million to them as well as penalties.
That hasn’t happened, according to a Corporation Commission official.
I reached Hirsch by phone at his office on Thursday, and he told me he "wasn't aware" of owing the money. He acknowledged Radical Bunny unsuccessfully tried to appeal the judgment two years ago.
When asked why he didn't think he and the rest of the Radical Bunny principals owed the fines levied by the Corporation Commission, Hirsch said the "Attorney General" hadn't contacted them about paying the judgement.
One Radical Bunny investor, who I talked to for stories on the debacle in the past, was about to retire a decade ago and live on her income from the big lender.
She lost her home to foreclosure five years ago and is now working two jobs. When I talked to her Monday, she asked that I not use her name now because “it’s too heartbreaking to go through the nightmare again.”
For years she was hopeful regulators would get back some of her money.
The SEC didn’t respond to my questions about the status of the case.
But Angie Holdsworth of the Corporation Commission told me “we have a judgement (against Radical Bunny) and are attempting to collect on it.”
It’s been a convoluted and complicated process to try to unwind Mortgages Ltd.’s operations and help the thousands of investors who were hurt.
Pollack believes Mortgages Ltd. investors got the highest prices buyers were willing to pay for the properties during a tough economic time.
Still, he’s not happy.
“As an investor, I am still pretty upset with Scott Coles,” he said. “It was the amounts he loaned that caused the disaster. He (Coles) got carried away with the bubble.”
Mortgages Ltd. still keeps a lot of people up at night.