Developer of $2B Ritz Project in Scottsdale Seeks Bankruptcy

The fight over the $2 billion Ritz-Carlton Paradise Valley development is headed to another courtroom.

Five Star Development, which is behind the 122-acre Scottsdale project dubbed The Palmeraie, filed for Chapter 11 bankruptcy protection in the Southern District of Texas to shield the property from what Five Star believes to be wrongful foreclosure on the part of its lender, Josh Zegen’s Madison Realty Capital.

Madison refutes the claims, arguing Five Star has mismanaged the project. The bankruptcy filing names 34 Five Star affiliates and lists 30 creditors with the largest unsecured claims, which total $17.4 million.

Five Star has been working on The Palmeraie, at 7000 East Lincoln Drive, since 2007. Plans include a 215-key Ritz-Carlton resort, 80 branded villas, 32 homes and a 29-acre luxury retail and restaurant district. It borrowed $585 million from Madison for the project in 2023. Five Star said in a news release about the filing that infrastructure is mostly complete and hotel construction is in its final phase.

Madison claimed Five Star defaulted on the loan in October 2024. In April the lender moved to foreclose on a cluster of El Paso properties Five Star had pledged as collateral for the construction loan. Madison asked the court to appoint a receiver last month.

Five Star responded with a May lawsuit against Madison claiming the lender — which has a reputation for being aggressive, but has recently tried to cultivate a more institutional image — manufactured the default using “strong-arm shark tactics,” in the words of Five Star’s attorney on the case, Dan Brockett, a partner with Quinn Emanuel.

The lawsuit includes claims that Madison violated Arizona’s RICO statute — a rare claim for a lawsuit brought by a borrower against its lender.

Specifically, the developer claims a Madison employee forged the signature of Five Star founder Gerald Ayoub to approve unauthorized construction costs. It also accuses the lender of withholding payment from hotel contractors and misusing funds that were intended for the development of the hotel.

Madison denied the claims in its response, alleging that it continued to fund the project after Five Star’s default — to the tune of $79 million. It referred to the developer’s May lawsuit as a “last-ditch effort to evade the consequences of Five Star failing to perform its contractual