By Ray Stern
By Ray Stern
By New Times
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By Stephen Lemons
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Days later, Coles agreed to give Tempe Land Company a separate loan for $45 million. Again, the developer wouldn't be getting the full amount up-front. Coles doled out a mere $9 million to the Centerpoint project from the second loan. Losch's company had already burned through $120 million from the first Mortgages Ltd. loan.
"And then Scott was back in default again," Losch told the court. "Not another penny came in after that."
Tempe Land Company began withholding payments to subcontractors, from the architect to the concrete pourers, eventually owing several of the companies a total of more than $24 million. Mortgages Ltd. filed for Chapter 11 bankruptcy in mid-May 2008. Two weeks went by. Then, on Saturday, June 1, Losch called Coles at home to tell him some more bad news:
The principals at Tempe Land Company had determined that their best option was to declare bankruptcy, too. That way, they could quickly find new financers to continue work on the towers. Naturally, the new investors, who would have to be approved by a judge, would move to the front of the line — ahead of Coles' investors — for the ultimate claim to the towers in case of liquidation.
At first, Coles was "panicked" by the idea, Losch testified.
That makes sense, because Mortgages Ltd. had more of its investors' money sunk into Centerpoint than any other project. Bankruptcy for Tempe Land Company meant the investors, such as those with Radical Bunny, might lose their shirts.
Coles seemed to warm up to the decision as the phone call went on, suggesting to Losch that they come up with a plan first thing the next week.
That night, Coles dressed in a black tuxedo, surrounded himself with a makeshift shrine to his second wife (who had left him) and chugged down a bunch of oxycodone, Ambien, and booze. Coles' 15-year-old son found his lifeless body the next day.
Scott Coles was dead, but the financial pain within Mortgages Ltd. and Tempe Land Company went on. Both bankruptcy cases, which bleed into each other, are monsters — perhaps the most complicated in Valley history. A February court motion related to the condo towers contains the names of 27 lawyers representing various clients' interests.
The time for playing nice was over. The relationship between lender Mortgages Ltd. and Tempe Land Company was getting ugly.
Losch had testified that he needed an emergency loan to put the rest of the windows in the towers, which would protect the building from rain and mold, and to get the air-conditioning going. Mortages Ltd. managed to scrape up $2.8 million from different investors and lent it to Losch, but the A/C never was turned on. Instead, Tempe Land Company used part of the money to pay itself. Mortgages Ltd. cried foul and pressed the court for a finding of fraud.
Then it was Tempe Land Company's turn.
Soon after filing for bankruptcy, Losch and his partners launched a civil complaint against Mortgages Ltd. The condo developer asked for tens of millions of dollars in damages, claiming Coles' company ruined the project by failing to pay the full amount of the first and second loans.
Further, Coles and Mortgages Ltd. representatives covered up the extent of the company's money problems and wrongfully charged $10 million in fees for the unfulfilled loans, the developer alleged. The claim is still pending in court.
Last month, Tempe Land Company persuaded a federal judge to allow it to convert from Chapter 11 reorganization — a plan that could have propped up the company if it found new financing — to Chapter 7 bankruptcy. This leaves the project in the hands of a court-appointed trustee.
The fallout for investors, workers, and would-be condo buyers is severe. Several of the subcontracting companies filed court motions to oppose the Chapter 7 move, stating that "a liquidation would likely result in payment to only a very few."
Phoenix attorney Christopher Simpson says the $24 million in lost payments to the subcontractors "endangers the enterprises that puts these people to work."
David Hansen is not so optimistic. He has no faith that he'll see more than a fraction of his original investment. A retired school principal and real estate dabbler from Nevada, Hansen, now 72, wrote checks for 10 years to Radical Bunny, which in recent years put most of his money — about $1.4 million from his pension plan, personal savings, and 401(k) — into the condo towers.
He recalls a dinner at the Orange Table in Scottsdale a few years ago for investors in Radical Bunny (now also in bankruptcy), when advisers at the company touted the Centerpoint project.
"They showed the new rail line was going right there in Tempe [and] said it was prime property because Tempe was landlocked," he says. "They were saying this was a sure winner."
Radical Bunny investors like him were supposed to have been in first place for the Centerpoint project's deed, if it came to that. But besides the subcontractors, other investors "at the last minute, through several different devious means, were put in front of us," Hansen says.