[Don B.]

^ Nice spin there.

http://www.azcentral.com/realestate/...nt1206-ON.html

The developer of the stalled Centerpoint condominium towers in downtown Tempe filed for bankruptcy on the project Friday after months of legal wrangling with its construction lender, Mortgages Ltd.

With its Chapter 11 petition for reorganization, Avenue Communities LLC said it also planned to file a lawsuit against Mortgages Ltd. and the lender's investors for failing to fund loans to build the high-rise project.
The bankruptcy petition and pending lawsuit were brought by Tempe Land Co., a limited-liability company Avenue Communities formed to develop Centerpoint.
The filings come on the heels of accusations that the developer misused emergency financing it received from Mortgages Ltd. in September money approved through the lender's own bankruptcy case. Avenue Communities was to use the money to enclose portions of Centerpoint's partially complete buildings.

Centerpoint is one of several real-estate developments that have been mired by financial problems at Mortgages Ltd., considered the state's largest private commercial lender.

Those problems are believed to have prompted the suicide of Mortgages Ltd.'s then-chairman and chief executive officer, Scott Coles, and forced the hard-money lender into bankruptcy in June. At the time, the lender's portfolio included about 70 development and construction loans worth about $925 million.

Centerpoint consists of a 22- and a 30-story condo tower along with retail space near Mill Avenue. Avenue Communities has repeatedly pushed back the opening timeline due to a lack of funding.

The developer received about $133 million in financing from Mortgages Ltd. to build the project, which has been under way since 2005.

The developer was supposed to receive as much as $170 million. However, the lender could not raise enough cash from investors, who supplied most of the money that Mortgages Ltd. lent to developers.

Discussions between the various constituents in Mortgages Ltd.'s bankruptcy have stalled, Avenue Communities principal Ken Losch said. The developer believes it can gain approval for financing that it says is available for the project more quickly through its own bankruptcy.

"We're not looking to reduce any liability," he said. "We're looking for the judge to give us the authority to move forward and finish our community."

In the Chapter 11 petition, the developer said its assets and liabilities are worth between $100 million and $500 million each. The company has between 100 and 200 creditors.

Losch said his company has received a term sheet from a lending firm that is willing to provide up to $75 million to finish building Centerpoint. He declined to name the lender.

In order for a new lender to fund the project, a first-lien position on the property would be needed. That in turn would require Mortgages Ltd. to subordinate its current first-lien position on the Centerpoint project. The new lender then would be first in line to get paid if the project is successfully completed.

Losch said he believed it was more likely that his company could get such financing approved through its own Chapter 11 bankruptcy rather than Mortgages Ltd.'s.
Attorneys for Avenue Communities and Mortgages Ltd. have been in discussions to settle their clients' disputes since this summer. Part of the discussions focused on Mortgages Ltd. finding Avenue Communities additional money to complete Centerpoint through another lender.
In September, Mortgages Ltd. gained approval from the U.S. Bankruptcy Court to funnel about $2.8 million to the project via lending firm Stratera Portfolio Advisers.

That money was to be used to shore up the exterior of the partially complete towers, including installing windows and air-conditioning. Mortgages Ltd.'s attorneys filed a motion on Tuesday in bankruptcy court contending that accounting records show Avenue Communities misused some of those funds for "improper, unapproved expenditures," including legal fees, reimbursements and overdraft fees.

A hearing on the motion, which seeks for Losch and his business partners to show why they should not be held in contempt of court, is scheduled for 10 a.m. Monday at the U.S. Bankruptcy Court.

Losch said his company obtained approval from Mortgages Ltd. managers for all payments it made with the emergency funding.

Bradley Stevens, a bankruptcy attorney for Mortgages Ltd., declined to comment on the matter.

Mortgages Ltd.'s efforts to approve a larger settlement that involved finding as much as $75 million more for Avenue Communities have been delayed several times because of settlement discussions with other borrowers that also threatened to sue for a lack of funding.

Because Mortgages Ltd. is trying to reorganize its debts in bankruptcy, it must obtain court approval for all actions it takes related to its loan commitments and business operations.

That has been a difficult task because of opposition from creditors whom Mortgages Ltd. owes money and from the lender's investors. They have tried to block certain settlements out of fear of losing money in the deals.
Some developers have filed lawsuits against Mortgages Ltd., investment funds it managed and individual investors, claiming they should be held liable for underfunded construction loans. Avenue Communities is now taking that approach.

Attorneys working with Mortgages Ltd. have tried to dismiss the suits.

--don