The Palmeraie developer sues Paradise Valley to protect $2 billion project

Real Estate | 6 Jul |

Five Star Development – builder of The Palmeraie luxury community and accompanying Ritz-Carlton, Paradise Valley – has filed suit against the Town of Paradise Valley in Arizona Superior Court.

The legal action is the culmination of months of attempted coercion on the part of Paradise Valley officials, who seek to disregard the terms of a 2016 development agreement in order to force Five Star Development to pay millions of dollars in new and unstipulated infrastructure costs. No coincidence, the Town’s pressure campaign comes as its operating revenues are down an estimated 40% and it faces a potential $10 million reduction to its General Fund in the coming year.

“This is a shakedown, pure and simple. The Paradise Valley Town Council is sorely mistaken if it thinks it can rip up our development agreement and squeeze us for millions of dollars in bogus fees and charges just so Town Hall can paper over its budget shortfall,” said Jerry Ayoub, President of Five Star Development. “The Palmeraie – including the Ritz-Carlton, Paradise Valley – will be an economic powerhouse and is the most ambitious luxury community ever built in Arizona, and we are committed to paying our fair share for infrastructure. But we will not bow to the financial coercion of Town officials, nor will we allow them to jeopardize a project in which hundreds of millions of dollars have been invested, including from Arizona families who’ve already purchased residences as part of our property.” 

The Palmeraie is a $2 billion master-planned luxury community being built along the border of Paradise Valley and Scottsdale, northwest of the corner of Scottsdale Road and Lincoln Drive. Within the 122-acre mega-development, a Ritz-Carlton resort and spa is being built, along with lavish homes, villas, Class AA+ office space and a world class shopping district. The Palmeraie represents Arizona’s largest multi-use project currently under development, and has employed nearly 700 construction workers. Upon completion, it is estimated the community will generate almost $430 million/year in total consumer spending – from which taxes remitted to the Town of Paradise Valley will fund a large portion of local services and programs.

At the heart of the legal conflict is a 42-page development agreement that details the roles and responsibilities of Five Star Development and the Town of Paradise Valley as part of the Palmeraie project, including infrastructure improvements. Specifically, Five Star had agreed to pay for certain street improvements adjoining the property, including the construction of turn lanes and similar enhancements. Paradise Valley officials, however, now demand that Five Star fund at least $2 million worth of offsite improvements to regional storm drainage and flood control. Additionally, the Town has reneged on other critical aspects of the development agreement, improperly assessing project management and other fees, refusing to allocate financial credits to the firm as prescribed in the agreement, and more. 

Most disturbing, when Five Star Development objected to the unwarranted fees and other changes to the development agreement, Town officials threatened to withhold various permits and approvals necessary for the project to proceed. This may include delay of the Town’s issuance of Certificates of Occupancy necessary for buyers of Ritz-Carlton-branded Villas and Estate Homes to close escrow and take ownership. 

Recently, in an attempt to avoid litigation, Five Star Development and Town officials attempted to resolve matters via mediation. An agreement was reached, which the Paradise Valley Town Council subsequently rejected. 

“The Palmeraie is the largest economic development project in the history of Paradise Valley, with the potential to both secure this community’s financial future and cement its status as a world class tourist destination,” Ayoub said. “It’s terribly disappointing that Town officials, rather than working with us, would hold our project hostage at this late date in an attempt to secure additional financial concessions. We look forward to bringing The Palmeraie to completion and are optimistic the Superior Court will hold the Town of Paradise Valley accountable to the development agreement it signed.”

 

Completion of The Palmeraie Phase I, including the Ritz-Carlton and resort-branded residences, is expected by late 2020 or early 2021.

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