The head of one of Arizona's biggest private lenders to the property industry is believed to have committed suicide after the company he controlled ran into severe funding difficulties.

The death of Scott Coles, 48, the head of Mortgages Ltd, last month comes amid mounting evidence that the prolonged residential housing slump that has blighted America for the past two years is spreading to the US commercial property market.

While all of America's states have experienced a downturn, Arizona has been one of the most severely affected, having benefited from a spectacular boom from so-called snow-birds - pensioners who move to the country's South or West seeking a warmer climate for the winter months.

Mr Coles was found dead at home in Phoenix on June 2. Although the Maricopa County Medical Examiner's Office is conducting an investigation into the cause of his death, police have ruled out foul play.

Mortgages Ltd was one of the biggest private lenders in the state during the property boom that has grown over the past decade. The company was entrusted with about $727 million (£364 million) of private funds, which Mr Coles used to back projects such as an entertainment complex at the training stadium used by the Los Angeles Dodgers and Chicago White Sox baseball teams.

Mr Coles concentrated on offering high-interest, short-term loans to construction companies that developed large property projects, such as shopping centres, flats and offices. Such lending is very lightly regulated and allows borrowers to secure cash quickly with very little red tape. It is believed that Mortgages Ltd operated in such a way that it provided no more than 5 per cent of the overall debt for any project.

Mr Coles then packaged up the loans and sold them on, allowing investors to take a stake in developments and, in good times, rewarding them with double-digit returns. Typically, Mr Coles targeted wealthy professional individuals such as doctors, lawyers and dentists, to invest in his lending schemes. Most had a net worth of at least $1 million.

However, while Arizona experienced one of the biggest surges in residential property values and a consequent rash of building projects, it was also one of the first to suffer in the downturn. Some homes in the state have lost as much as 40 per cent of their value in recent years and such declines have shown no sign of slowing. Even though the commercial property market has been less affected by the downturn in the residential side, commercial lenders are beginning to suffer from an increase in defaults from borrowers forced to contend with the economic slowdown across the United States and a slide in other investments.

Mr Coles sought to inject new capital into his business to offset the defaults, but he tried to raise fresh money in terms that undermined his existing investors. When some investors sought to withdraw their funds in April, they were refused by Mr Coles because of lack of capital.

In the weeks leading up to Mr Coles's death, the company was sued by a number of investors, some of whom alleged fraud, racketeering and breach of fiduciary duty in lawsuits filed at the Arizona Superior Court. At the time, the company denied the allegations. Laura Martini, president of Mortgages Ltd, failed to return calls yesterday. On June 24, three weeks after Mr Coles's death, Mortgages Ltd filed for Chapter 11 bankruptcy protection, 45 years after it was founded by Mr Coles's father, Charles.