Lender moves to foreclose on $2B Ritz-Carlton Paradise Valley project amid legal battle

By Angela Gonzales

The lender for the $2 billion Ritz-Carlton Paradise Valley and The Palmeraie residential development has made plans to foreclose on the property amid a tense legal battle.

The lender, an entity affiliated with New York-based private equity company Madison Realty Capital, filed a notice of trustee's sale on Aug. 4. A public auction is set for Nov. 12 at the Maricopa County Superior Court Building in downtown Phoenix, according to county documents.

The foreclosure sale marks the latest escalation in a dispute that also includes a lawsuit filed earlier this year by the project's developer, Scottsdale-based Five Star Development, against Madison Realty Capital and its group of lenders. A key deadline in that case is approaching later this month.

For years, Five Star Development's 122-acre luxury master-planned community has been beset by financing issues and litigation. The project includes the 215-room Ritz-Carlton Paradise Valley Resort, 80 condominiums and 32 single-family homes as well as The Palmeraie retail center aimed at high-end tenants.

At one point, the luxury hotel was expected to open in 2024, but construction on the site has been paused for almost a year.

Five Star Development in May filed a lawsuit alleging that Madison Realty Capital has put itself in a position to seize control and ownership of the project. The developer alleged in an amended complaint filed in July that Madison and its affiliated lender used their status to "interfere with and take over the project for its own financial gain" through tactics such as funding delays, withheld approvals and the weaponization of consent rights designed to "wrongfully force Five Star into financial concessions and chaos."

Madison Realty Capital has denied allegations of wrongdoing, court records show. In a motion to dismiss the case filed in June, Madison describes the Five Star lawsuit as "meritless," and a "last-ditch effort to evade the consequences of Five Star failing to perform its contractual promises," the court documents show.

That motion to dismiss was suspended in July, when Five Star Development filed its amended complaint. The parties have agreed on an August 29 deadline for either an answer or a motion directed at the amended complaint, court records show.

Five Star: Project has 'ground to a halt'

Five Star Development acknowledges in its amended complaint that the project "has ground to a halt" — and that the town of Paradise Valley "has refused to issue further certificates of occupancy, required to successfully close sales on the Villas, because work on the Hotel has stopped."

The lawsuit further alleges that Madison "approved unauthorized construction costs, directed unbudgeted work, and withheld payment for hotel construction" — actions that triggered cost overruns, mechanics liens and other legal issues.

"The hotel sits unfinished. Costs have ballooned. Buyers of the Villas have backed out and even more are threatening to do so," the lawsuit states.

The developer alleges Madison "had other designs" despite its agreement to fund a multi-phase project.

"This is a classic lender liability case where you have the lender acting outside its role as lender in trying to undermine the developer in the development of the project," said Daniel Brockett, chair of Quinn Emanuel Urquhart & Sullivan LLP's litigation practice and general counsel for Five Star.

Brockett said he is working furiously ahead of an Aug. 29 deadline to secure court rulings related to how quickly the case can move. A typical lawsuit of this nature could play out over the course of years, but Brockett said he's trying to accelerate the schedule to get rulings more quickly.

Lender weighs in on lawsuit

Madison's group of lenders declined comment, but court records offer some insight into their side of the story.

Madison alleges Five Star defaulted its $585 million loan in late 2023, after missing contractual construction milestones. The loan matured on June 1 and has not been repaid, Madison alleged in its motions to the court.

The lender's motion to dismiss alleges Five Star executed 11 reservation of rights letters between January 2024 and May 2025 which "expressly stated" that Five Star Development was allegedly in default under the construction loan agreement. Such letters can be used to protect the contractual rights of lenders when they are negotiating with borrowers who are in default.

In the same filing, Madison frames the project as allegedly being "a model of disfunction, delay, and financial mismanagement — a squandered potential for economic development now a mere magnet for litigation."

In a separate court filing, Madison describes the lawsuit as a case where the "wrongdoer camouflages itself in the cloak of victimhood in a misguided appeal for expedited justice in the more of more credit than contractually agreed upon."

While Five Star is asking Madison to release more funds so the project can be completed, another response from the lender shows that no funds remain to complete construction.

"Jerry (Ayoub, president of Five Star) has a lot of frustration with the whole thing and the way it went down," Brockett said. "He believes he's been put in this position by the lender. Now he's trying to get some new financing. That new financing would pay off some of the loan."

Madison would have to allow for the new financing to come in and remove the hotel from the scope of the lien for Five Star to continue construction, Brockett said.

While development of the hotel has been paused, all 80 of the Ritz-Carlton Villas are built, with 79 under contract. Of those, 37 have closed and are occupied, said Brendan Mann, principal of The Solvere Group, which is handling residential sales for Five Star Development.

One of those condominiums listed for $6.95 million is under contract and is expected to close later this month, said Julie Rohr of ROCO Luxury Homes at Retsy | Forbes Global Properties and listing agent.

Of the 32 single-family detached estates, 17 are under contract, said Mann.

Paradise Valley awaits resolution

Five Star has until 5 p.m. on the last business day before the scheduled date of of the foreclosure auction in November to present its arguments to object to the trustee's sale.

Meanwhile, the Ritz-Carlton hotel, which when opened will generate revenue for the town of Paradise Valley, is in limbo while awaiting construction to be completed.

"The hotel sits there and nothing is happening except weeds are growing," Brockett said.

Andrew Ching, town manager for Paradise Valley, said the town remains focused on the commitment to seeing this world-class development come to a successful completion.

"We have supported 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," Ching told the Business Journal. "We believe the hotel, homes and amenities will be a valuable addition to our town.”

Paul Thompson of Phoenix Business Journal contributed to this story.

Final Thoughts
The Ritz-Carlton Paradise Valley project is now facing foreclosure as lender Madison Realty Capital moves toward a public auction scheduled for November 12, 2025. At the heart of the dispute are allegations of funding delays, missed milestones, and stalled hotel construction. With millions already invested, completed Villas mostly sold, and the retail component waiting, the project’s future depends on legal outcomes and potential new financing. Until resolved, Paradise Valley’s highly anticipated luxury destination remains on hold.