Contractors have filed more than $60 million in claims over unpaid bills for work on The Palmeraie, the $2-billion Ritz-Carlton-anchored development that is scheduled to debut its first phase later this year.
The development, which straddles the Paradise Valley-Scottsdale border north of downtown Scottsdale, covers 122 acres and will include a Ritz-Carlton resort, residential villas, multi-million-dollar homes, retail, dining and office space.
Utah-based Layton Construction, the lead contractor on the project, filed three liens between December and March totaling $46.7 million for non-payment against an entity owned by Palmeraie developer Five Star Development, according to documents filed with the Maricopa County Recorder’s Office.
Twenty-three subcontractors – which perform services like painting, roofing and HVAC work – have also filed 35 separate mechanic’s liens totaling $17.2 million.
According to the liens filed by Layton, the company signed contracts worth up to $259 million in 2016 and 2019 with Five Star Resort Owner LLC to construct the hotel and villas and perform associated site work.
Five Star Resort Owner LLC is owned outright by Five Star Development President Jerry Ayoub, according to Arizona Corporation Commission records.
In a statement provided to the Progress, a spokesman for Layton said the construction company terminated its contract with Five Star Development.
“This action comes after numerous written requests to Five Star Resort Owner asking that it honor its contractual obligations and pay many millions of dollars owing and long overdue to us and all subcontractors/suppliers,” according to the statement.
A spokesperson for Five Star Development said the lien totals by the Progress on the basis of court records are inaccurate. The company did not respond to a follow up request for information showing where the court records are in error.
Five Star Development CFO David Humphreys characterized the liens as a normal part of doing business as the developer transitions away from working with Layton to a new general contractor, PWI Construction.
“The liens filed from the former contractor are a normal and expected result of that transition process and are in no way indicative of the project being at risk for non-completion,” Humphreys said. “Contractors have been paid and are being paid. If and when there is a dispute, a process would be underway to resolve it.”
But Layton Construction says it ended the contract due to non-payment and that it and subcontractors continue to go unpaid for work already performed.
“In our industry, this is an unfortunate turn of events because workers want to finish projects they start but they also have to be paid,” Layton said. “We and our subcontractors have invested a significant amount of time in this project.”
“Unfortunately, we had no choice considering the millions of dollars long overdue and unpaid despite repeated pleas to Five Star Resort Owner to pay the many local businesses and hard-working men and women who worked tirelessly, despite the constant threat of the COVID-19 pandemic, to build Five Star’s project,” Layton said.
Despite the ongoing lien issue, construction is continuing on The Palmeraie.
At least one contractor with outstanding liens – Midstate Mechanical – could be seen working on the site in recent weeks.
According to liens filed with the recorder’s office, Five Star owes Midstate over $3.5 million for work performed on the project.
Midstate Mechanical did not respond to a request for comment.
The first lien filings came as the developer was already engaged in a legal battle with the Town of Paradise Valley.
According to a lawsuit filed by Five Star Development in Maricopa County Superior Court in June 2020, the developer alleged the town was purposefully withholding permits and certificates of occupation in order to coerce the company into providing around $2 million in underwater storm water drainage infrastructure that the company said is not included in a development agreement the parties signed in 2016.
Certificates of occupancy have significant financial ramifications as Five Star paid the town $3 million for building permits for one area of the property but could recoup $2 million of that if it receives certificates for specific buildings within five years.
At the time, Ayoub, Five Star’s president, said “This is a shakedown, pure and simple.”
The town denied the allegations, arguing it was only attempting to enforce infrastructure obligations assigned to the company in the agreement.
“It’s unfortunate that during this uncertain time, rather than work proactively to find solutions, Five Star has chosen to file a lawsuit against the very community its project would call home,” Paradise Valley Town Manager Jill Keimach said in a statement.
The town further alleged Five Star was using the lawsuit as leverage to push through rezoning requests in the future – an accusation Five Star denied.
That lawsuit is ongoing.
Despite the lawsuit and lien issues, Five Star said the project is on track.
In a press release issued in June 2020, Five Star indicated the first phase of the project, the Ritz-Carlton hotel, would be completed by the end of last year, and the second phase – including the retail, dining and office space – would be complete by the end of 2020.
The developer did not meet that initial deadline, but Humphreys, Five Star’s CFO, said the first phase is nearing completion.
“This is a $2 billion development that is nearing completion on the first phase and will be among the most impressive luxury master-planned developments in all of Paradise Valley and in the country,” he said.