Saturday, March 12, 2011

Tempe Centerpoint Condominiums deal almost complete

The deed is done.

Or, more aptly, the deed now belongs to Zaremba Group, a Cleveland-headquartered developer with an office in Scottsdale. And so does the job of transforming downtown Tempe's tallest towers into luxury apartments by summer.

"It is really in their hands (now)," said Elliot Pollack, chair of ML Manager, successor of Mortgages Ltd.

The Centerpoint Condominiums project was ML Manager's biggest asset and investment. The loan to developer Tempe Land Co. was estimated at $135 million. After Mortgages Ltd., once Arizona's largest private commercial-real-estate lender, filed for bankruptcy in 2008, Centerpoint became an albatross for the company to unload.

Keith Hendricks, a Fennemore Craig attorney representing ML Manager, called the deal the "most complicated and contentious closing I've ever seen."

To close the deal last month, ML Manager and Zaremba had to contend with five bankruptcies, angry investors, 29 companies that filed liens on the project for unpaid work, two wary title companies and countless lawsuits.

After more than two years of fighting the legal red tape to own the 22- and 30-story skyscrapers, Kent Chantung, director of development for Zaremba's Scottsdale office, said that renaming the stalled project to West Sixth signals a fresh start.

Chantung, sitting in an interview last week next to Ethan Minkin, the lawyer he credits with guiding him through the legal twists and turns, shook his head at the thought of the hurdles Zaremba had to overcome to own West Sixth.

"Ethan explained . . . it could be impossible," he said. "(But) this was an opportunity to complete a project in the center of the Valley and in the heart of Tempe."

From the beginning, the towers faced obstacles. A cache of Valley residents argued that Tempe leaders were flooding the market with condos, and it was unrealistic to think that there was a large enough market to afford 375 Centerpoint units priced from $300,000 to $7.5 million. But reviving the beleaguered Mill Avenue District and changing the face of Tempe seemed as tempting to developers then as it does now.

When the Tempe City Council waived height limits in 2005 to make way for the condos, the real-estate market was at its peak. Ken Losch, the key developer in charge of the project, promised that "Tempe (was) becoming a world-class environment. It'll be on par with Miami's South Beach in the next 10 years."

With no end in sight to Arizona's real-estate boom, Losch was persuasive. But a year and a half later, Mortgages Ltd., the towers' primary financier, filed for bankruptcy after the suicide of its CEO in summer 2008. As the real-estate bubble exploded, Centerpoint developers worked to get court approval for a second financier to back the project, but they were unsuccessful and filed for bankruptcy.

With the first tower nearly complete and the second tower about half-finished, ML Manager took back the project on behalf of investors. At a trustee-sale auction, ML Manager purchased the property through a credit bid and then placed it on the market for the highest bidder.

Centerpoint sank into a legal quagmire as the company worked to reorganize after bankruptcy. The company fought legal claims by Radical Bunny, an investment group that was being investigated by the federal Securities and Exchange Commission in illegally funding Mortgages Ltd., and contended with investors and countless companies standing in line to get paid for work on the towers.

Radical Bunny, an entity of more than 500 investors, had provided the majority of the money to finance Centerpoint. As part of Mortgages Ltd.'s bankruptcy, Hendricks, the ML Manager attorney, said any major decisions about ML Manager's properties had to be voted on by members of the loan LLC that had invested in the projects.

For Centerpoint, that meant getting Radical Bunny's board to vote in favor of the sale to Zaremba and sending out ballots to hundreds of other investors. The ballot vote was overwhelmingly in favor of the sale, Hendricks said. But a handful of Radical Bunny investors filed legal objections and appeared at the Feb. 10 court hearing where the bankruptcy judge ultimately approved the sale.

Meanwhile, Chantung had to get a new title company to approve the sale. Title-company approval stymied Zaremba's first attempt last fall to buy the towers.

"It was literally the night before the deal was supposed to close last year that they (the original title company) said it was too big of a risk," he said.

To get First American Title Insurance Co. to approve the deal last month, Chantung said he got permission from ML Manager to personally appeal to companies that were owed money on Centerpoint's construction.

In January, the Bankruptcy Court approved a deal in which an LLC formed by Radical Bunny would use $13.5 million of the $30 million to purchase the liens on Centerpoint, satisfying a stipulation by First American in order to approve the title.

Although the sale is complete, the lawsuits surrounding the deal linger. Pollack said that ML Manager intended to file a lawsuit against the first title company, claiming that it should cover the liens.

Pollack said, "If someone doesn't write a book about this, I'll be surprised," he said. "Since Mortgages came out of bankruptcy, this whole thing has had everything. It's got death. It's got good guys. It's got bad guys."

by Dianna M. Náñez The Arizona Republic Mar. 9, 2011 12:00 AM

Tempe Centerpoint Condominiums deal almost complete

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