Flamboyant real estate financial Scott Coles wrote a farewell letter

Last Updated on Sunday, 17 October 2010 03:21 Written by Administrator Sunday, 17 October 2010 03:11

Flamboyant real estate financial Scott Coles wrote a farewell letter, put on a smoking and climbs in bed, where he was later found dead in what police believe was a suicide. The tragedy is the last month, drawing attention to the state of the nation's commercial property market, which is beginning to show signs of distress. 

Mr. Coles, who was 48 years, has built his company, Mortgages Ltd., Arizona one of the biggest private lenders during the property boom. He specialized in the short term, high interest rate loans to developers - the builders of shopping malls, parks, offices, condominiums and other projects - which have bad credit or need cash fast Without red tape. But he overreached, and the debacle that has devastated the U.S. housing market over the past year is now pressure Mortgages Ltd. 


To maintain and even exceed the more and more problems, Mr. Coles focused on loans more and more - totaling approximately $ 200 million - an obscure company, radical Bunny LLC, headed by its accountant. He also sought to raise new funds on terms that undermine its existing investors. These initiatives triggered the departure of several senior executives within the company in recent months. 

So far, the commercial property market has been spared by the devastating losses felt in the housing market because it was not flagrant overbuilding. But declining property values and a weakening of the U.S. economy beginning to bite: Mortgages Ltd. and other lenders reported a significant jump in loan defaults. It is putting enormous pressure on lenders, who have bet billions of dollars for the construction of new commercial establishments. 

"Scott was too optimistic and believe the good times would forever," said Elliott Pollack, a prominent Scottsdale, Ariz., an economist and real estate consultant who has invested in mortgages Ltd "The world has changed and it will crush a lot of other donors in the country. " 

Mr. Coles a reduction greater than-life profile. He had several houses, including two hotels adjacent to Phoenix's exclusive Biltmore, and near an area with its own 18-hole pitch-and-putt golf. A regular on the circuit of charity Arizona, he helped some 100 organizations and socializing with members of the Phoenix Suns basketball team, some of whom were his investors. His funeral was a standing-room-only crowd of 700 people. 

In the weeks before his death, Mr. Coles has been beset by personal and professional difficulties. His second wife, 26 years, Ashley Coles, had just left for a 48-hour separation provisional, according to the police report on his death. A lawyer for Ashley Coles declined to comment. At the same time, a series of prosecutions brought by Mortgages Ltd s borrowers and investors in Arizona Superior Court allegations of fraud, racketeering and breach of fiduciary duty, among other things. 

Mortgages Ltd denies the allegations. President Laura Martini said "pre-preventive" to justice by borrowers who are fighting have exacerbated the company's financial difficulties arising from the crisis of credit. The lawyers accuse the company of exploiting borrowers M. Coles's death to try to drive Mortgages Ltd in bankruptcy. "This company has nothing to hide," John clemency lawyer said a bankruptcy court. 

In June 24, the company, which was founded by Mr. Coles his father 45 years ago, entered Chapter 11 bankruptcy-court protection. 

Document 


See the term sheet for a $ 51 million loan to Mortgages Ltd Rightpath Development Group Ltd to acquire land and develop an entertainment district in Glendale, Ariz., around the proposal for spring training stadium for the Dodgers in Los Angeles and Chicago White Sox. The terms show the loan interest rate and high initial costs, which represent 6.5% of capital and thus increase the cost of borrowing to 19%. Mortgages Ltd. won most of its revenue from fees when the loans were made or extended.Mortgages Ltd s troubles shine a light on the niche of so-called "hard money" lenders - a high-risk, low regulated company that specializes quick loans to property developers, with a minimum of red tape. These donors feel they are not more than 5% of total loans. But they lubricate the wheels of commercial real estate , A quintessential local companies famous for developers whose ambitions often exceed their cash resources. 

Rapid growth Arizona alone saw the number of these lenders swell to 60 in 2006, less than 10 two years earlier, according to investors Mortgage Holdings Inc., a Scottsdale-based rival Mortgages Ltd local or regional lenders, such as those they scattered across the country, from New York's Madison Realty Capital, which has claimed more than 500 million commercial real estate loans in 2007, the point Financial Centre Inc. Aliso Viejo, California, Avatar Financial Group LLC in Seattle. Mortgages Ltd. is $ 928 million in loans last year, a tenfold increase over 2001. 

To fund its loans, mortgages Ltd has made investments of wealthy local professionals - so-called "doctor and dentist money." Investors were attracted by Mortgages Ltd. 's double-digit annual both historically low incomes on more traditional investments. They entrusted Mr. Coles with some 727 million dollars of their money because of his history of high returns and often repeated mantra that the company had "never lost a penny of capital for investors." 

Today, the hard money lenders who are not themselves at risk during the boom, and still provide capital, are on the verge of cash under the credit pushes traditional lenders such as banks to stay on the sidelines. But many, like Mortgages Ltd, suffer higher default and having a more difficult time raising funds that investors get gun shy. This one two punch threatens to deprive commercial developers nationally a final stop borrowing source precisely when it is required to maintain a life of construction projects. 

Mortgages Ltd began in 1963 by Charles Coles, including his son idolized, said co-founder Ronald Anatole. The young Mr. Coles took over the company in mid 1990 and remained first of his conservative father. Until four years ago, the company rarely makes loans of more than $ 20 million. 


Avenue Communities 
Centerpoint Condominiums in Tempe, Ariz., Mortgages Ltd's largest customer, needs at least $ 50 million more to complete construction. 
Then, Mr. Coles has changed tactics and aggressive, beyond modest mortgages for suburban tracts of land. He asked for more in the long term and risky loans to the signature Phoenix-area projects: a boutique hotel in the city centre, an entertainment complex in spring training stadium for the Los Angeles Dodgers and Chicago White Sox, 21 Castle-style brownstones. Its largest loan, 150 million, finance the construction of Centerpoint, a tower of 375 units of condominiums in Tempe, Ariz., replete with a swimming pool lined with sand to create an artificial beach. 

A financial whiz, Mr. Coles has created ways for doctors, lawyers and others who have a net worth of at least $ 1 million to invest in mortgages Ltd s loans. As an institution of Wall Street, he sold securities by pools of mortgages society. Like a commercial bank, "union" loans - to let investors buy shares in mortgages. The loans have interest rates averaged more than 12%, but the costs boosted borrowing costs to more than 19%. (The bank loans generally have been less than 10%.) 

It has been profitable for investors in mortgages Ltd their annual returns ranging from 9% to 18%. 

"Scott wanted to be larger than life. He saw himself as the construction of Phoenix," said Malcolm Jozoff, retired president of personal care products maker Dial Corp., a friend and investors who often played golf M. Coles his succession. 

Public Profile 

Mr. Coles cultivated a high profile thanks to the celebrity events at his home, like a recent Super Bowl party featuring comedian Chris Rock. He hobnobbed with Phoenix Suns players. 

"It was a sports groupie," said Eddie Johnson, the Suns television commentator and former player. "He took me under his wing and taught me all about his business," he adds, noting that he has obtained a securities license of the seller before investing in mortgages Ltd Retired Suns center Mark West says he invested in County Mortgages Ltd in Arizona documents show that former NBA star Penny Hardaway was also an investor. Since then he has received at least some of its holdings. 


Mr. Hardaway officer did not respond to a request for comment. 

After a divorce from his first wife, Mr. Coles remarried in 2006 to Ashley Coles, whom he met in Las Vegas. Mr. Coles spent millions of dollars over Phoenix houses for their personal use. Near the main 12-hectare, he bought a 19,000-square-foot Mediterranean and the adjacent house, where he was the renovation of his being and Ashley's new home. 

Mr. Coles imitated his father's hands on work ethic. Even mortgages grew Ltd, approves all loans and dictated the terms of costs, the company main source of income. But to fuel rapid growth, three years ago it review its loans - to turn to a source outside its traditional base of wealthy individuals. 

Mr. Coles is the main lender now Tom Hirsch, his accountant and friend of confidence. In addition to running an accounting practice, Mr. Hirsch controls radical Bunny, Arizona registered a company whose main activity seems to be lending money to mortgages Ltd origin of the firm's name, Bunny radical, is unclear. 

Mr. Hirsch did not respond to requests for comment. 

Bunny radical requested by investors with 11% annually, according to several investors in the company. Bunny radical then lent money to mortgages Ltd, for amounts that are passed from one blip four years ago to total approximately $ 200 million from June. 

About a year ago, this arrangement has raised some unscrupulous agents Ltd mortgages and advisers, people familiar with the matter say, because at the time Mr. Hirsch had no securities or investment adviser to solicit investment licences and manage financial products in exchange for compensation. Former associates of Mr. Coles and a major investor Mortgages Ltd say that Mr. Coles refused to discuss their concerns about Mr. Hirsch. 

Last fall, Mr. Coles was feeling financial heat. Several Ltd Mortgage borrowers were unable to repay their loans. Mortgages Ltd still had to make monthly interest payments to its own investors. He also faced $ 131 million in future obligations to borrowers. These loans were staggered, on the assumption that the money would be available when payments are due. But with borrowers in default and new investors balking, M. Coles increasingly has been unable to meet these commitments. 

Hungry for money, Mr. Coles has developed a plan to raise new funds which have resulted in a compromise Mortgages Ltd. 's basic principles: that investors hold the "senior" positions loans, which means they are first in line to get paid in the event of a default. Under the new fundraising plan, new investors would reduce to the front of the line - moving the previous investors. Mr. Coles has the right to do so, according Mortgages Ltd operating agreements. 

"Scott Coles was a good person who made some bad decisions and were trapped, but it was not out of malice," said Michael Denning, then president Mortgages Ltd. In December, he left because management of the company was headed. Other senior officials quit amid concerns about fundraising efforts, the quality of loan and related issues, people familiar with the matter say. 

Mortgages Ltd declined to comment on the departures. 

January after its launch, the fund-raising effort is under $ 10 million, far less than the company needed and had hoped to raise. 

In the spring, mortgages Ltd has not promised to keep lending, construction has slowed in key projects, including the massive Tempe condo development. In March, a developer continued Mortgages Ltd in Arizona Superior Court for negligent misrepresentation, claiming the lender pledged to lend $ 47 million to build luxury brownstones without having sufficient funds. 

The two parties settled, with Mortgages Ltd acknowledging that the promoter does not have to repay the loan. Mortgages Ltd took over the project, which remains at a standstill. 

Investors fear mounted in April, after Mr. Coles reiterated its request for new investments. Instead, many investors rushed to withdraw their money. They were rejected by Mr. Coles, lack of funds. 

Retired plastic surgeon Dodenhoff Ted and his wife Mortgages Ltd has assigned the end of May in the Superior Court for access to company records. The couple, which has invested more than $ 500000, the company said it distorted protections afford investors and breached its fiduciary duty with "an evil heart guided by an evil spirit," says the complaint. Mr. Coles has been running the former investors under the bus to get new investors, "said Christopher LAVOY, their lawyer. 

The two parties negotiated a settlement in line with e-mails reviewed by The Wall Street Journal. 

Rightpath Development Group Ltd, which has agreed to borrow $ 120 million to develop the land around a baseball stadium, also continued to the end of May in Superior Court. He alleged Mortgages Ltd is "fraudulent false statements" about its financial resources, has changed the schedule of financing without the consent and imposed "patently absurd" loan-extension fees under a program " defraud applicants and lend money at usurious rates. 

Mortgages Ltd rejects the allegations as an attempt by a borrower to repay its debt to avoid. 

Days after the trial, an optimist M. Coles has organized a poker tournament charity to its field and has vowed, "I will fight through" the difficult period, "said Pollack, the economist. 

A Deal falls through 

But next week, a new offer to secure the funding of its first project, the Centerpoint condos in Tempe, fell through. Increase in tension with his wife, Ashley, has led to a decision to separate for 48 hours to "evaluate their relationship," according to the Police Department Phoenix report on his death. 

Late on June 1, M. Coles faxed a willingness to change his lawyer and wrote a letter to his first wife. Both documents have a "tone goodbye" to them, the police report said. He placed a quote from Shakespeare on his bed and wearing a dinner jacket, climbed under the covers cardboard with a picture of Ashley. He was found dead on June 2 with no sign of trauma or lack play, said police. The county medical examiner is expected soon to report on the official cause of death. 

In the wake of the tragedy, the Arizona Department of Financi al Institutions said it is pursuing a "standard of review of compliance." The Arizona Corporation Commission refused to comment. The Securities and Exchange Commission has also requested documents, Mortgages Ltd. executives say, without elaborating. 

The SEC declined to comment. 

As Mortgages Ltd is seeking new funds to continue operating, only 27 of 71 borrowers are currently payments, the company said. Mr. Coles has long boasted Mortgages Ltd ability to survive the recession. "It is an art to what we do," he told investors in 2007, a newsletter, as the subprime loan crisis was unfolding. This month, for the first time in memory, Ltd Mortgages so far has not made its interest payments for investors.