Foreclosure threat is the latest in a decade of drama surrounding $2B Paradise Valley Ritz-Carlton

A $2 billion hotel development project in Paradise Valley is facing foreclosure. The Ritz-Carlton has been under development for more than a decade, but this foreclosure — along with legal action — means the drama may well continue for at least a little longer.

Paul Thompson, managing editor of the Phoenix Business Journal, with reporter Angela Gonzales, have been following the twists and turns in the project over the years.

Full conversation

MARK BRODIE: Paul, what’s going on with this foreclosure plan?

PAUL THOMPSON: Well, you want the short version or the long version? There's obviously a lot that's been going on here, as you alluded to. This project has been in Five Star Development's hands since 2007. There's been multiple general contractors. There's been some litigation. But where we're at now is there's a dispute between the developer and their lender.

And the lender in early August filed this notice of trustee sale that would happen in November unless something happens in an ongoing lawsuit before then to stop it.

MARK BRODIE: What's behind the current disagreement between the lender and the developer.

THOMPSON: Well, it always boils down to money. There was a $585 million loan in May 2023 that was provided by a subsidiary of Madison Capital to Five Star Development, which is working on the wider project. And if your listeners aren't familiar, it includes a Ritz-Carlton Hotel with 200-plus rooms,

Ritz-Carlton branded villas, luxury retail, fine dining, other amenities. A lot of this stuff has been done already, but not everything. A lot of the condos are up and running, and there's a clubhouse and a bar pool. And that portion of the property has been completed. And then there's the hotel portion, there's some of the villas, there's some of that luxury retail and dining I'm talking about.

So, what the developer wants is more money to finish construction. What the lender has said is that the developer is in default. They missed some deadlines for construction, and I think as of early June, they're also in default on the loan, with it having matured and not be having been repaid.

So, they're in a bit of a standstill. Litigation actually kicked up in May, was filed by the developer against the lender, arguing that the lender was not operating in good faith and that it had essentially conspired to peel the property away from the developer. Of course, the lender has denied any allegations of wrongdoing and has allegations of its own to throw back.

And there's been that tit-for-tat. That's been going on since May.

Jim Poulin/Phoenix Business Journal

BRODIE: And while lawsuits tend not to be super amicable, I want to read you a line from one of the legal filings that you cite in the story. This is from the lender in the project who describes it as being, "a model of dysfunction, delay and financial mismanagement." Not exactly happy talk there.

THOMPSON: Yeah. You could go through the documents, as I have done, and find many examples of contentious language used by both sides against the other. That's a great example of it. There's a few that really stood out to me. But what's clear is that "construction has ground to a halt." I think that is a direct quote that's from the amended complaint that was filed by Five Star Development, saying that they're not working on the hotel. And at one point they claim — and there's been some back and forth about where this actually stands as of today. But at least a month or two ago, Five Star had said that Paradise Valley had, "refused to issue further certificates of occupancy," which were required to successfully close sales on the villas because work on the hotel had stopped.

So there's, you know, obviously a big problem there if the. The big money maker for the city, the hotel portion of the property, is not currently under construction, and there are no immediate plans to get that back up and running. So, to your point, it's awful contentious at the moment.

BRODIE: Well, so what are the possible outcomes here? ... Depending on how this lawsuit goes, what might happen with that hotel?

THOMPSON: Well, at this point, it's really difficult to say. Obviously, there's some deadlines coming up. We highlighted an Aug. 29 date in the story that will provide some answers — or at least should provide some answers. You know how things go with litigation. There's a chance that some deadlines get delayed. But of course, having the foreclosure sale scheduled, having the notice of trustee sale filed, shows that the lender's pretty serious about moving forward with that.

Now, does that mean that it can't be pushed back? Sure. In legal cases like this, there's always a way to delay. Of course, I don't want to presume or speculate about what that might mean, but that Aug. 29 deadline is ... essentially it's the deadline for the lender to respond to the amended complaint filed by the developer.

There's a chance that other filings could happen before then, too. At this point, it's kind of a wait-and-see. I wish I could tell you exactly how this will play out, but I'll just leave it at this: I've covered this, these kind of cases before. Obviously, every one is a little bit different, but there are a lot of things that can happen between right now and November to either gum up the works, to delay, or for this thing to be resolved altogether.

Perhaps, hypothetically, if Five Star were able to get outside financing and pay off the lender, then all of a sudden, maybe this becomes a moot point and construction kicks back up. Now that's just a hypothetical at this point, but we do know that Five Star is hoping to get financing.

BRODIE: Sure. So what does all this mean for the town of Paradise Valley? I can't imagine that town officials are thrilled about this sort of partially completed hotel just sitting there.

THOMPSON: The only comment we got from them on the record is from Town Manager Andrew Ching, who says, “We support the developers of this exciting Ritz Carlton project by approving condominiums as their construction is complete and substantial progress is made towards completion of the hotel.” Now, you could parse that quote however you want, but the official statement we got does mention, you know, as "substantial progress is being made on the hotel," and that's happening right now.

So they. They do believe, you know, the end of the quote suggests that the city believes the hotel, homes and amenities will be a valuable addition to the town. Of course, that requires all those amenities to be completed, and we're not there yet. At the same point. I mean, you can imagine, this thing is more than a decade old at this point.

You have to assume that at some point they want it to just be done and stop hearing headlines and reading stories about litigation as well.