Five Star Development sues Paradise Valley over dollars and cents defined in development agreement

Developer of Ritz-Carlton Paradise Valley, The Palmeraie seeks declaratory judgment in Superior Court

Posted 6/30/20

A lawsuit between Five Star Development --- the entity behind the forthcoming Ritz-Carlton Paradise Valley --- and the Town of Paradise Valley has emerged in the Superior Court of Arizona, records …

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Five Star Development sues Paradise Valley over dollars and cents defined in development agreement

Developer of Ritz-Carlton Paradise Valley, The Palmeraie seeks declaratory judgment in Superior Court

Posted

A lawsuit between Five Star Development --- the entity behind the forthcoming Ritz-Carlton Paradise Valley --- and the Town of Paradise Valley has emerged in the Superior Court of Arizona, records show.

The June 25 complaint seeks declaratory judgment on Five Star’s legal responsibilities to pay for the costs of underground drainage structures --- a point of contention for both sides within the development agreement --- as well as a judgment that it is entitled to credits for plan review fees; and requesting the town must pay $1 million toward Five Star’s portion of the cost of street improvements.

Paradise Valley officials believe they have acted fairly, responsibly and correctly, citing to refuse any closed-door rezoning agreements for the Five Star property without going through an open and transparent public process.

The lawsuit lists Five Star Development as the plaintiffs, while the Town of Paradise Valley, Mayor Jerry Bien-Willner, and the other six Town Council members as named as defendants.

The town and Five Star Development, spearheaded by President Jerry Ayoub, have been working together to see the reality of a 105-acre swatch of land near Scottsdale Road and Lincoln Drive be transformed into a mixed-use resort and housing property for several years.

In January 2016, the then-Town Council voted 4 to 3 to approve a development agreement between the two entities.

The approved development agreement speaks to tax revenues over the next 30 years, phasing of construction and identification of a luxury resort operator, which in this case is explicitly the Ritz-Carlton, Independent archives show.

A source close to the situation says the development agreement is at the crux of this matter, as Five Star seeks to receive certificates of occupancy for some of its dwellings --- while the agreement stipulates the Ritz-Carlton hotel must be constructed and operating prior to certificates being granted.

Through an investment of $130 million, Ritz-Carlton’s initial plans were to build a Ritz-Carlton branded resort community that includes seven development-area characteristics:

  • Area A: 215-room resort;
  • Area A1: 94 resort-branded villas;
  • Area B: 66 single-family homes;
  • Area C: 45 resort-branded, single-family homes;
  • Area D: 53 townhomes;
  • Area E1: A 54,000 square-foot luxury retail center on 7.2 acres
  • Area E2: Influx design as the use of 5.7 acres is yet to be determined

Original construction timelines estimated the resort opening in late 2018.

Sources say the hotel is probably a year away from being completed, while a press release from Five Star in June stated the resort has plans to open in late 2020 or early 2021.

“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 Mr. Ayoub in a prepared statement.

“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.”

Town Manager Jill Keimach says Paradise Valley has acted in good faith and done nothing wrong in its negotiations with Five Star over any aspect of the 2016 development agreement.

“While two parties can certainly have disagreements about the meaning of contract terms, it does bear mentioning that Five Star has insisted upon interpretations of the 2016 development agreement that would result in the public, via the town, bearing greater financial costs, while Five Star has also raised changing the agreed-upon timing for certificates of occupancy and rezoning parts of the project as part of a resolution of what the town sees as totally unrelated, relatively minor contract interpretation issues,” Ms. Keimach said in an emailed response to questions.

Questions were also presented to Mayor Bien-Willner. The two town officials agreed to send joint responses, collaborating on answers, Ms. Keimach said.

Ms. Keimach also noted that Five Star requested rezoning and other changes to the DA, without proper public input, transparency and adherence to the town’s required special use permit amendment process.

The Ritz-Carlton and Palmeraie development is about a $2 billion investment, according to Five Star officials, while the drainage work in question is estimated to be about $2 million.

Five Star Development is represented by zoning law firm Berry Riddell’s Jeffrey D. Gross, while Patrick Irvine of Fennemore Craig is representing Paradise Valley.

Lawyer discussions

In a June 19 letter to Mr. Irvine, Mr. Gross lays out Five Star’s position on the matter.

The correspondence between the two law firms was provided to Independent Newsmedia.

“...it is not acceptable to Five Star to maintain the status quo, in which the town continues to take the unsupportable position that Five Star is obligated to pay for drainage structures and invoices Five Star for drainage improvements,” Mr. Gross’ letter states.

Mr. Gross says Five Star spent “significant time and money” going through mediation, expecting that the agreed-upon terms would resolve the parties’ disputes, including the drainage in question.

“Instead, the town chose to reject the resolution that Five Star reasonably believed would put this matter to rest,” Mr. Gross says.

Further, he says Five Star is not willing to run the “constant risk” of being placed in default by the town for not making a payment it believes it has no legal obligation to make.

Mr. Gross requested the town agree in writing to accept the terms agreed to in mediation by close of business on June 25, otherwise Five Star’s complaint would be filed.

The timing of the June 19 letter made meeting Five Star’s deadline difficult.

“We do note that your June 19 letter, sent late on a Friday afternoon, demanded a response by the town within a timeframe that was both arbitrary and impossibly short, especially considering that discussions on these issues have been underway since May 2019,” Mr. Irvine said in a June 30 written response to Gross.

“In fact, the Town Council and senior staff were still in session and meeting on various important public matters at the time your complaint was filed. Under the circumstances, your jump into court by filing a declaratory judgment action will provide certainty to all parties regarding their rights and obligations under the Development Agreement.”

Additionally, Mr. Irvine believes that while Five Star and Paradise Valley have had many discussions, an agreement between the two entities was never reached.

“The mediation did not end with any agreement, tentative or otherwise, and we have no doubt that the mediator will confirm that fact,” Mr. Irvine stated.

“Your letter does not include, even in summary form, what terms you believe were agreed to, so we are unable to address in detail when they were discussed or why they were not accepted. We do recall that Five Star consistently demanded the Town agree to re-zonings as part of any resolution of the various matters raised by Five Star, and the Town consistently rejected any compromise that includes zoning decisions that do not follow required and public processes.”

Disagreeing sides

Five Star Development officials point out that as part of the DA, it agreed to pay for certain street improvements adjoining the property, including turn lanes and similar enhancements. They allege town officials now demand Five Star fund at least $2 million worth of off-site improvements to regional storm drainage and flood control.

Five Star also says the town has reneged on other critical aspects of the DA, improperly assessing project management and other fees, and refusing to allocate financial credits to the firm, as described in the agreement.

“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,” Mr. Ayoub said. “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.”

Ms. Keimach disagrees with Five Star’s assertions, saying the town has continued to work in good faith since signing the DA.

“The town does not believe it has done anything wrong, and firmly feels that it has acted fairly, responsibly, and correctly. The town has from the inception of the 2016 Development Agreement worked in good faith with Five Star to advance their project in a timely and efficient manner, and to discuss and try to work through any disagreements over the interpretation of the 2016 Development Agreement,” Ms. Keimach said.

“The town has repeatedly gone out of its way to try to ensure that none of these issues interfered with Five Star’s development work. The town has considered all of Five Star’s requests and has and will continue to work with Five Star to facilitate its project in a manner that it believes is fully compliant with the2016 Development Agreement, which was the product of an extensive public process and Town Council votes in 2015 and 2016.”

Ms. Keimach also notes that none of the negotiations and discussions with Five Star have had a detrimental effect on the construction of the Ritz-Carlton, which is still ongoing.

“Five Star controls its own construction schedule, and the town has worked to fast-track permitting and review activities that relate to construction,” she said. “The town continues to hold regular meetings with Five Star to discuss and work through issues that typically come up in any large construction project.”

Over the years, the town has facilitated the Planning Commission’s review of all special use permit amendments to every change Five Star has requested, Ms. Keimach says, from a change in the design for perimeter walls, entry details, residential light wells and street names.

“All those changes were approved through the SUP amendment process as required in the town’s zoning code. And notwithstanding the disputes raised by Five Star in its Complaint, the town has proceeded to pay for and build the roads and infrastructure required of it under the 2016 Development

Agreement including the disputed monetary items raised in the Complaint,” Ms. Keimach said. “The town does not believe that any of the matters discussed at Five Star’s request have had any effect on Five Star’s development progress.”

From May-October 2019, Paradise Valley Town Council hosted seven closed-door meetings related to the Ritz-Carlton project, Independent archives show.

At that time, Ms. Keimach was quoted as saying:

“The council is working to finalize a number of project details as required in the development agreement. Some of those details require legal interpretations and legal issues and negotiations are generally handled in executive session. The Five Star project is complex, including with the town’s required participation in the construction of the roads exterior to the project (including improvements to Lincoln, Mockingbird and Indian Bend Drive) and coordination of the underlying infrastructure feeding the project. Five Star’s cooperation with the town is also important with respect to a number of these items.”

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