Hotel Monroe On Hold. Phoenix Downtown Projects Affected

Lender's downfall puts Phoenix downtown in limbo

The financial storm brewing around Mortgages Ltd. has touched two key downtown Phoenix projects, a blow to ongoing efforts to reinvigorate the city's heart.

There is no more loan money to fund construction and renovation work for Hotel Monroe, a high-profile luxury project, the developer said Tuesday.

And a proposed Jackson Street entertainment district is looking for new lenders for a land deal.
And it was unclear if other downtown projects could be next.

It's unknown what developments are among the estimated 70 loans in the embattled Phoenix company's $925 million loan portfolio.

The downtown projects are significant because Phoenix and state officials have invested years of planning and millions of taxpayer dollars to resuscitate what had once been a sleepy business district.

On Tuesday, city officials downplayed the impact, noting that Phoenix has many successful downtown projects under way. That includes the expanding Arizona State University downtown Phoenix campus, the $600 million convention-center expansion and the nearly complete 1,000-room Sheraton hotel project, said Phoenix's downtown-development director John Chan.

"One segment of the market is slowing down, but there are a lot of positive things going on in downtown Phoenix," said Chan,adding that the Mortgages Ltd. meltdown is a symptom of the national credit crisis.

Yet, the Mortgages Ltd. fallout left two projects scrambling for new lenders.

• On Tuesday, the developer behind a $100 million boutique-hotel project announced that renovations at the historic 1930s office building are winding down. The renovated hotel was expected to open Oct 1.

Its developer, Grace Communities, has been paying contracting expenses out of its reserves because Mortgages Ltd. has stopped funding its loan, which was for $75.6 million, said Jonathon Vento, a partner with Grace.

He declined to estimate how long the project would be delayed, noting that the company is in the process of renegotiating contracts with vendors.

Mortgages Ltd. has said it believes lawsuits filed by Grace and other borrowers are efforts by borrowers that are in default to buy time.

Vento insists Grace has not defaulted on any loan payments to Mortgages Ltd. and that the lender's claims are attempts to distract attention from its financial situation.

• Mortgages Ltd. has also loaned an undisclosed "seven figures-plus" sum to Dale Jensen, one of the developers behind a planned Jackson Street entertainment district near Chase Field, Jensen said.

Jensen is looking for another lender to take over the loan, which helped finance a land deal connected to the entertainment district.

"That's all I am doing night and day, arranging alternate financing," Jensen said, adding that the loan helped to buy two city blocks directly south of the Summit at Copper Square condo tower.

Jackson Street has also faced delays, but they are unrelated to the Mortgages Ltd. problem, Jensen says.

Mortgages Ltd., the state's largest private lender, filed for Chapter 11 bankruptcy Monday. On Tuesday, Judge Randolph Haines granted Mortgages Ltd.'s motion to convert the case to voluntary Chapter 11, but tabled a request from Grace to appoint an independent trustee to take over the lender's operations.

Mortgages Ltd. has made several changes to its business, prompted by the apparent suicide of Chairman and CEO Scott Coles on June 2.

The company financed commercial real-estate projects for developers using money it raised through accredited investors to fund the loans.

Since Coles' death, the company said it is no longer making loans or accepting new money from investors.

Effects from the case have rippled to projects across the Valley. In addition to Phoenix projects, the lender's borrowers include developers in Tempe and Scottsdale.
Source: AZ Republic