Horizon, Host: Ted Simons

June 2, 2010


Host: Ted Simons

Mortgages Ltd. Properties

  |   Video
  • The collapse of the real estate and financial markets sent Mortgages Ltd., a real estate investment firm, into bankruptcy. The company has emerged from Chapter 11 and is now selling off assets to try to recoup money for investors. We’ll hear from former Arizona Land Commissioner Mark Winkleman who has been hired to oversee that process. And we’ll go inside two premier properties: the Centerpoint Towers in downtown Tempe and the Chateaux on Central brownstones in central Phoenix, which were recently sold to a company that plans to put them on the market by the end of the year.
Guests:
  • Mark Winkleman - Former Arizona Land Commissioner
Category: Business/Economy   |   Keywords: business, real estate, mortgage,

View Transcript
Ted Simons:
It's hard to believe that only five years ago, Arizona real estate market was booming. Property values were increasing at unbelievable rates. And investors were scrambling for a piece of the action. It appeared that making money from real estate was a game you couldn't lose and a company called mortgages limited decided to go all-in. The real estate investment firm borrowed money and made loans to build some of the most daring projects the valley had ever seen. But when the real estate and credit markets collapsed, those projects stalled, and the CEO of mortgages limited committed suicide. The company was forced into bankruptcy. In a moment, we'll hear from the man who's responsible for selling assets that belonged to mortgages limited in an effort to return some money to investors. But first, David Majure and photographer Scott Olson take us inside two projects that were once jewels in the mortgages limited portfolio.

Narrator:
They're the tallest build information downtown Tempe. The 22 and 30-story Centerpoint Condominium towers are just the beginning of what's supposed to be a four-tower complex. With 788 residential units it promised to take the town to new heights but never really got off the ground. Nobody lives here. Construction started in 2005 and ended in 2008 before the project was finished.

Dan Tilton:
And stopped because the lender didn't have any more funds. Essentially exhausted all the funds they had.

Narrator:
It's a similar story in mid town Phoenix. For Chateauxes on central.

Joe Morales:
There was a lender that became insolvent and due to that, the developer's funding was cut off.

Narrator:
Both projects stalled in 2008 when the lender, mortgages limited, filed for bankruptcy.

Joe Morales:
You're looking at a standard kitchen that's not standard my by means.

Narrator:
But Chateaux on central has new life.

Joe Morales:
All of the appliance, granite and cabinetry, it has it all.

Narrator:
It was sold to a Wisconsin-based company that plans to sell the brown stone residences by the end of the year.

Joe Morales:
I think it's a contrast, the old world architecture sets the development off.

Narrator:
There are 21 units each with four stories and a basement. Most of the residences are about 5200 square feet and all have their own elevator. Joe Morales has been hired to sell the property.

Joe Morales:
This is our urban backyard. Fully equipped for entertaining, yet different media, games, billiards area and we have complementing terraces.

Narrator:
Originally priced from almost $3 million to $5 million, the units won't be quite that expensive when they're put on the market later this year.

Joe Morales:
We actually have the unique benefit of making the same or actually a better luxury offering for the fraction of the cost to build.

Narrator:
The new owner bought it for $7 million, a bargain considering it's more than $40 million in debt and there's still a lot of work to do. Morales says he's confident the buyers will be there when they're ready to sell.

Joe Morales:
We're right in the middle of a number of cultural arts venues so people heavily involved with Phoenix theater, art museum, heard museum, we believe this is a great spot for pro-athletes and basketball players and we sit right in the middle of about four major medical facilities. I have no doubt once we go to market, we're going to have a huge demand.

Narrator:
Meanwhile, in Tempe, the effort continues to find a buyer for the Centerpoint towers.

Dan Tilton:
The property is currently just on the market, we're qualifying bidders. We're at the first level here. Plaza level.

Narrator:
It's a mixed use project with space for a public grocery store and a restaurant on the first floor.

Dan Tilton:
Really a place to gather people from around the entire neighborhood.

Narrator:
Dan Tilton, who works as a consultant on the project, took us on a tour.

Dan Tilton:
Maybe up to the first units that are finished.

Narrator:
The condominiums range in size from about 500 square feet to more than 4,000 in the penthouse.

Dan Tilton:
And we're on the top floor of the first tower and then beyond us is the second phase 30-story tower, and then out here, this parking lot, is going to be the site of two more 30-story towers.



Narrator:
The 22-floor tower is 90% complete and the taller tower, about 75%. He says the property is in good shape considering it's been empty and partly open to the elements for almost two years.

Dan Tilton:
Even though the building hasn't been air conditioned and it's been dormant since October of 2008, the millwork looks in great shape, the appliances are fine. The water is running, the water loops in. So we've been really trying to keep the project as stable as we can during this downtime. But it's way more finished and in much better shape than a lot of people thought. [Laughter]

It's a very generous balconies. You can see all of downtown Tempe. Really not a bad view. Great view.

Narrator:
The views are fantastic in just about every direction. But what are people willing to pay for that view? We won't know until a buyer comes along who is willing to complete the project and put the condos up for sale.

Ted Simons:
Joining us now for more perspective on this story is Mark Winkleman, chief operating officer for ML manager,
LLC. Good to see you again.
Thanks for joining us.

Mark Winkleman:
You're welcome, Ted.

Ted Simons:
Let's talk about your role with these properties. What is it?

Mark Winkleman:
ML manager is the entity that emerged from the Mortgages Limited bankruptcy and we've got 60 commercial loans to. These properties were two that were given to us, to deal with them. Foreclose, sell them, try and maximize the return to the investors.

Ted Simons:
The Tempe condos did not sell at foreclosure action, was that a surprise?

Mark Winkleman:
No, not at all. We just foreclosed. So it was reported that our credit bid was $8 million, so that's where it started. Had people shown up to bid, we would have bid substantially more, but it allowed us to take control of the property and eliminate liens and it was a lender foreclosing on a bad loan.

Ted Simons:
Now you have it, now you're marketing it, is there serious interest in these condos?

Mark Winkleman:
There's an amazing interest. Around the country and outside of the country. We selected one the nationally prominent firms to represent us and went out with packages, over 300 confidentiality agreements and request for packages, which is a huge amount and asked for qualifications and had over 75 well qualified companies express interest and starting today, we're doing tours, the next couple of weeks, we're marching people through. We’re meeting with the city and letting them look at the construction documents and narrowing the field down and if things go as planned, we should find a new owner by the end of the summer.

Ted Simons:
That quickly?

Mark Winkleman:
We hope so.

Ted Simons:
As far as what you're hearing for potential use, I'll tell what you I'm hearing -- rentals, assisted living, student housing, try to turn them as condos again. What are you hearing?

Mark Winkleman:
All of those things and even more. We've tried not to figure that out. And obviously, with the number of parties that have contacted us about buying, there's ample interest so we don't need to figure that out, or what it’s worth, the marketplace will.

Ted Simons:
How about the possibility of tearing the two towers down?

Mark Winkleman:
That's ludicrous. It's in a great location, well designed. The units are many of them are virtually complete. I know I've heard those rumors but I can't imagine that would happen.

Ted Simons:
If a buyer came in and said, I think I would rather put X, Y, Z here, instead of this, they're the buyer, they can do it?

Mark Winkleman:
We don't care. If they're the highest buyer, they can to whatever they would like.

Ted Simons:
Conversely, the original project as we heard in the taped feature, supposed to be four towers there eventually. Anyone talking about building out or a bit much?

Mark Winkleman:
That's a -- that's out there a ways. The task at hand is to finish the two towers, whether they turn into condos or student housing, so they can start to generate income.

Ted Simons:
As far as the market is concerned right now, for -- we'll still call them luxury condos, considering the upgrades, what does that market say some of these units should be going for?

Mark Winkleman:
That's interesting. The market has obviously slowed down tremendously. When these were originally planned, I think they were counting on getting $700, $800 a square foot, at this point we’ll see. But it ranges from the quality and location. But condos are going from $150 a square foot to maybe for the very nice ones, $350, $400, but on average, the low-200s.

Ted Simons:
Is there's a scenario where we wait around to find the right buyer and these things sit empty for year after year after year?

Mark Winkleman:
I think that's unlikely. With the interest exhibited, I'm sure we'll find a buyer and anyone that plunks down the money needed to buy that is going to be highly motivated to turn these into revenue producing. There's a fair amount of work to be done but I would hope a year from now, or thereabouts. Some of those units will be in use and be whatever they're going to be when finished.

Ted Simons:
Let's head down to the Chateaux on central. Sold for $7 million. Surprised?

Mark Winkleman:
In a good way, I think $7 million was a good price for us. And that may seem surprising, given as reported in the video, they were supposed to sell for two, three, four million apiece. But the world has changed and we were happy to get the $7 million.

Ted Simons:
MSI West Investment I guess, is the buyer, who are they?

Mark Winkleman:
They're an affiliate of a food processing company out of Wisconsin. Out of state buyer, don't know what extent they have experience in real estate but they came in and made a good offer and as a matter of fact, it was shopped. We went into the bankruptcy court and gave the rest of the world to come in and bid higher and no one did and I think these folks found a unique product at a fraction of the cost to duplicate that and obviously, they're optimistic, they'll going to be able to sell. And the price per square foot will be relatively low.

Ted Simons:
They're large, are there ways to cut down the size of each unit, maybe make two out of one. You could maybe make more than two. Is that possible?

Mark Winkleman:
What they've stated, they're going to sell as designed. A lot of people looked at it and said, can you subdivide divide? Because you are right, 5000 ft is a very large condo unit but they're four stories with a basement. So each particular floor plate, not very big. The other constraining factor was the number of parking spaces. Each of the units only has two units, so if you cut them in half and doubled the unit, now every unit would only have one space and that's usually not enough.

Ted Simons:
So they sell for $7 million. Still looking for the Centerpoint sale here. Overall, an average investor in mortgages limited, the average guy, what are they looking at here as far as losses? Can you give us a ballpark?

Mark Winkleman:
It's a very sad story. The numbers, it's hundreds of millions of dollars. It was just short of a billion dollars put up and loaned out on 50-60 customer loans and the real estate market is obviously dramatically decreased. In retrospect, some of these deals may not have been underwritten as prudently as they should have been and the loss are substantial. We're trying to get the money back from the properties and we market them widely and try to get the best professionals to represent us and do the best we can but you're not going to get prices close to where the loans were made a few years ago.

Ted Simons:
There's a class action lawsuit regarding mortgages limits?

Mark Winkleman:
That was filed within the last two weeks and seeks damages from the professionals that gave advice to mortgages limited before the bankruptcy. The claims are these professionals owed a duty to be more prudent than they were and the investors relied on them to give advice and provide caution. And these type of suits never happen quickly. But it's -- there are big dollars involved and it's an avenue that hopefully, the investors will be able it recoup money from.

Ted Simons:
And aside from negligence and breeching fiduciary duty, was there much of a market for luxury condos in the valley to this extent?

Mark Winkleman:
Hard to say. There really aren't that many units. But if you take percentage of condos to single family homes and that sort of thing, it's not a big number. We don't know, because the world has changed. It's not what it was. So there was speculation that the condos were being over-built. No one knew the depth of that marketplace and we didn't get to find out because of the plunge of economy. No one is going to build any more units and when you can make the buys where it's below the cost to duplicate, that usually is a good opportunity for buyers, so I'm sure these units will eventually get absorbed and how long that takes depends on the economy and the number of jobs that are added and the overall economy performs. But I think you'll get these absorbed. How many more get built in the future, time will tell.

Ted Simons:
I asked the question because I don't think I am the only one driving down central avenue and wondering, wow, how is this going to work? It doesn't -- and as far as market research and stuff, do you look back on that and wonder yourself or --

Mark Winkleman:
Well, of course, I had no connection with mortgages limited when it was in business, so it's easy to second guess, but the project was a unique one. I'll put it charitably. But it's been held out as the example of the excesses of the real estate market. I believe it was in the "The New York Times," when they were doing a story about everything that went wrong and featured Arizona, Nevada, southern California and Florida and showed pictures of projects that shouldn't have been built and that was one that was shown.

Ted Simons:
You're saying better times are ahead, huh?

Mark Winkleman:
Yes, of course. We live in a wonderful place and long term, the amenities and lifestyle here, the weather in Arizona, will attract people. But right now it's tough because we don't have job growth and population growth and it's going to be slower than most of our downturns but eventually we'll bet back and do well.

Ted Simons:
Thanks for being here. We appreciate it.

Mark Winkleman:
You're welcome, Ted.

State Primary Election

  |   Video
  • Arizona State University Professor Emeritus Bruce Merrill reviews the upcoming primary election for Governor, Attorney General and others.
Guests:
  • Bruce Merrill - Arizona State University Professor Emeritus
Category: Vote 2010

View Transcript
Ted Simons:
Tonight on "Horizon" -- How Arizona's primary election is shaping up. The key races and the candidates who might surprise us. Plus, we'll take you inside two high-profile properties that stand as monuments to the valley's real estate boom and bust. That's coming up next, on "Horizon."

"Horizon" is made possible by contributions from the Friends of Eight, members of your Arizona PBS station. Thank you.

Good evening, and welcome to "Horizon." I'm Ted Simons.

The deadline for candidates to submit their nomination petitions for the August 24th primary election was a week ago. That means we now have a clearer picture of who will be on the ballot but that picture may continue to change. In fact, just yesterday, John Munger dropped out of the Republican primary race for governor. Here to talk about how that and some other key contests are shaping up is ASU professor emeritus of political science, Dr. Bruce Merrill. Bruce, always a pleasure.

Bruce Merrill:
Always a pleasure, Ted.

Ted Simons:
Let's start with the primary election and turnout. What are you seeing there?

Bruce Merrill:
Well, traditionally, it's lower than in the general election. That's nationwide, as well as Arizona. Probably 35% to 40%. Although the effect of 1070 may pump it up, particularly with the Hispanic community.

Ted Simons:
I was going to ask, 1070, pump in up inwhich direction? Do you get more of a tea party conservative, a Hispanic crowd and those against the law? What are you seeing?

Bruce Merrill:
Well, the tea party conservatives. The ideologues in both parties, they always go to the polls anyway, that's why there's a disproportionate impact on primaries in Arizona. The question that I ask every day, almost, is this finally when the Hispanics are going to vote? Is this an issue they feel strongly enough that they can get Hispanics to the polls? I doubt it. I mean, I think it's important for Hispanics to vote. 15, 20 years, they're going to be a majority in our state. But frankly, it's very difficult to get Hispanics to the polls. They might pick up a little bit, but I'm not convinced it will be enough to influence the outcome of the election.

Ted Simons:
Interesting. It's historically difficult to get younger folks to the polls as well. The Obama election changed that to a certain degree. What are you seeing this time around?

Bruce Merrill:
Your point's a good one. What we know from the presidential election, Obama brought out young people in much higher proportions and minorities and kept white older voters from going to the poll. You take Obama out the picture, the Democrats are going to have a difficult time. How will you get the young people to the polls, or the minorities when Obama isn't on the ticket? And so I think there's no question, that the Democrats are not going to do as well as they have two years ago.

Ted Simons:
And yet you have a democratic party in the house with no control of the house, senate, or the governor’s office right now wouldn't there be anger there or something there to push that crowd?

Bruce Merrill:
A little bit, Ted, but keep in mind that the main cause of voting, why people go to the polls is education. And the reason Hispanic vote is so low is that as a group, they have very low educational levels. If you took a group of college-educated Hispanics, they're going to vote in the same percentage as the group of college-educated ANGLOs, but as a group, their education level is lower. So they go to the polls much less as a group.

Ted Simons:
Lets go to the Republican side, the tea party -- before we get there. The tea party movement is this not just conservative Republicans a little more mobilized but the same bunch of folks?

Bruce Merrill:
I think in general the research shows that's the case. Because of the media conference of Obama and because of 1070 in Arizona, it's not that they're going to go out and higher percentages, because most of them vote anyway. But what this does do it gives more energy to that movement and so I don't think there's much question they're going to the polls on election day and that could effect affect some of the races, like McCain or Hayworth, for instance, or even the governor's race.

Ted Simons:
So basically the tea party movement will impact the GOP primary more so than conservatives would otherwise?

Bruce Merrill:
A little bit, but not a lot. Because their impact is -- the tea party is pretty much the same very conservative animated Republicans.

Ted Simons:
What about the old style Republicans; is that a dying breed in?

Bruce Merrill:
It's split in Arizona. For the past couple of years you have a growing split between the right wing conservatives and the so-called Goldwater conservatives. The irony is that the Goldwater conservatives are the moderate Republicans and remember in Arizona, and this is true of the nation also, the tremendous increase in independence. Why that's important, as people leave their parties, like myself, I was a Republican all my life, two years ago, I reregistered as an independent. But now the research shows maybe I didn't do the right thing and the reason is this. What we know is that many of the people leaving both parties are the moderates and so as they leave the Republican-democratic party, you end up with two parties that are much more ideologically split in more pure ideologues. That's one of the reasons we have a split in the legislature and in my opinion, a legislature that's much more conservative than the electorate in Arizona.

Ted Simons:
And that likely will not change this cycle.


Bruce Merrill:
I think 1070 is going to help people, like Russell Pearce and the people that want to really reinforce this more conservative view, I think it's going to help them.

Ted Simons:
The sales tax vote, does that give a limit as to what could happen in the primaries specifically?

Bruce Merrill:
I think it could. It shows the public isn't as stupid as some consultants think they are. I mean, it's a pretty conservative state. But when people have the information to know this money was needed for education and security, they overwhelmingly supported it. So I think that what's happened with the proposition 100 vote, is it probably helped Jan Brewer really propelled her into the lead in that race. There was a lot of concern that the true conservatives wouldn't vote for her because she supported a tax increase. But her support for 1070, the media memory is very short she's involved in that, and stood up for Arizona, I think that this is really brought back many of the conservative votes.

Ted Simons:
What other races should we look at and other candidates maybe we should watch as an indication of what could happen in the general. Who do we watch in the primary?

Bruce Merrill:
Certainly, the race between Andrew Thomas and Horne is an interesting one. Because when you look at Thomas, he's had the threats of being sued by the government, etc. and yet because of 1070s, my suspicion is he's going to be the favorite. So many people are angry over illegal immigration and he has really made that his single focus. I think it's going to be hard for Horne to overcome that.

Ted Simons:
You mentioned the McCain-Hayworth race. Is that something that could tip on this one issue alone?

Bruce Merrill:
I don't think so. I -- it's conceivable it could be closer. Would it be impossible for J.D. to win? No, but when you look at the difference in the money spent and the prestige of senator McCain having run for president. I still think he'll win in that primary.

Ted Simons:
Last question regarding the primary, the up-coming election, will we differ much in the rest of the country?

Bruce Merrill:
No. Not really. Arizona, the people that have really come into Arizona over the last 15-20 years have come from all over the country, we're kind of a microcosm of the country. Every time I do a poll and I put on a question that's a national poll, it comes out within a couple of percentage points.

Ted Simons:
Thanks for the analysis.

Bruce Merrill:
Good to be here, Ted.

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