Paradise Valley responds to lawsuit over $2B Palmeraie development

Above: The first phase of the $2 billion megadevelopment, The Palmeraie, is entering the home-stretch of completion and in the last three months, owner and developer Five Star Development has pivoted in order to proactively adjust, reconfigure and elevate certain elements of the project to better cater to the safety, health and wellness of future guests, shoppers, office workers and residents. Business News | 14 Jul |

The Town of Paradise Valley will work to protect the best interests of Paradise Valley residents and remain true to the spirit and the letter of its agreements with Five Star Development  – builder of The Palmeraie luxury community and accompanying Ritz-Carlton, Paradise Valley – in response to the developer’s lawsuit against the Town filed last week.

Five Star filed for a “declaratory judgment” against the Town overpayment of a portion of storm drainage facilities as part of its share of street improvements surrounding its development, as well as claiming it is not obligated to pay management and permit fees the Development Agreement defines as a Five Star financial obligation. Five Star and the Town mutually agreed to these fees when the Town passed, and Five Star subsequently signed the Development Agreement for its project.

Five Star controls its own production schedule, which it has delayed a number of times due to factors unrelated to the Town’s reviews and inspections of the project. Since the Five Star special-use permit and the Development Agreement for its Five Star Paradise Valley project was passed in 2016, Town staff has been working diligently and have fulfilled all of the Town’s obligations under the agreement in a timely and economical manner.

The Palmeraie on track to open 1st phase of $2 billion megadevelopment

Five Star’s lawsuit was accompanied by a press release that accused the Town publicly of pursuing the drainage and management payments that are mandated in the development agreement to help generate revenue to meet budget shortfalls. However, as Five Star noted in its press release, these issues were the central issues of a mediation that began in the second half of 2019, well prior to the Covid-19 pandemic and any budget impacts related to the pandemic. Since then, the Town secured over $8 million in low interest (1.09%) capital financing to provide the Town flexibility in complying with the state-imposed annual expenditure limitation in the event Five Star is financially unable or unwilling to pay its share of the construction. Capital financing options had been diligently examined by Town Council since 2019 and was not driven by a shortage of cash or concerns of revenue or long-term financial stability.

Five Star also publicly alleged that the Town was delaying the issuance of Certificates of Occupancy for portions of its project, despite the fact that the Certificate of Occupancy schedule is clearly defined in the Development Agreement and based on Five Star’s own internal construction milestones.

“We have endeavored to work proactively with Five Star Development throughout the construction process to overcome any hurdles that may arise,” said Jill Keimach, Town Manager. “It’s unfortunate that during this uncertain time, rather than work proactively to find solutions, Five Star has chosen to file a lawsuit against the very community its project would call home. Our goal as a Town will continue to be a simple one — to protect the best interests of our residents and to abide by the agreements we have in place to bring this project to fruition.”

Town officials are concerned that Five Star is pursuing litigation not just on the issues it has brought up, but also as a way to try to create leverage to “negotiate” rezonings and leverage the Town to amend the Development Agreement and issue Certificates of Occupancies for the residential Villas (including substantial completion of the hotel facilities), which prior to completing certain obligations Five Star specifically committed to under the Development Agreement. These commitments were essential to the Town’s decision to approve the Development Agreement and to ensure the promised Ritz-Carlton hotel was constructed in a timely manner.

The Town firmly believes that although Five Star appears to be trying again to leverage future rezonings and release of certificates of occupancy through litigation, the current issues in litigation are completely unrelated. The Town Council will not allow any construction-related litigation to be used as a negotiating tool for rezonings which must be transparent and follow the Town’s normal rezoning process. The Town has advised Five Star that if it wants to restart the rezoning process for any portion of its property, it needs to follow the Town’s special-use permit rezoning and amendment processes, just as any other development would. If a formal application is submitted, then the Town will consider such changes as part of the public process provided to all special-use permit properties in the community.

“We look forward to working within the confines of the legal system to address the concerns raised by Five Star and resolve them in a manner that allows the project to continue to move forward,” legal counsel Pat Irvine said. “All other unrelated items should be addressed through the standard public Town planning and zoning process.”

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