Five Star Development: $2B Ritz-Carlton Project Halts Madison Foreclosure

F-Star Socorro, L.P. and 34 affiliated Five Star Development entities filed for chapter 11 bankruptcy protection on November 4, 2025, in the U.S. Bankruptcy Court for the Southern District of Texas. The filing came eight days before a scheduled foreclosure sale by construction lender Madison Realty Capital, after a Texas state court found Madison engaged in "acts of manipulation and fraud in breach of their duty of good faith and fair dealing" on a $585 million construction loan. The filing centers on The Ritz-Carlton Paradise Valley and The Palmeraie, a 122-acre master-planned resort, residential, and retail destination with a projected value of $2 billion.

The centerpiece is the first ground-up Ritz-Carlton resort constructed in over 15 years, featuring a 215-room hotel, 80 branded Villas that generated approximately $250 million in pre-sale commitments, 32 Estate Homes starting at $7 million, and a 29-acre luxury retail district anchored by restaurants Mott 32 and Carbone. Five Star Development, founded in 1978 by Gerald C. Ayoub, has accused Madison of employing "strong-arm shark tactics" to manufacture a default, including allegedly forging Ayoub's signature to approve unauthorized construction costs. The bankruptcy invokes the automatic stay to halt foreclosure while the developer pursues villa sales and completes construction.

Company Background and History

Five Star Development Origins.

Five Star Development was founded in 1978 by Gerald C. Ayoub in the El Paso/Ciudad Juarez border region, later establishing headquarters in Scottsdale, Arizona. Since 1985, the company has developed more than 20 million square feet of residential, hospitality, retail, office, and industrial real estate across the Southwest. The company's active portfolio encompasses over 7.06 million square feet of commercial facilities under ownership and management, including more than 3.2 million square feet of warehouse and distribution facilities in El Paso.

The company purchased the 122-acre site in May 2007 from an affiliate of Marriott. The development was originally proposed in 2007 but faced delays, including the 2008 Great Recession that paused construction plans and the COVID-19 pandemic that further stalled progress. Construction was initially scheduled to begin in 2016 before being pushed to 2018, with home sales commencing that year.

In January 2016, the Paradise Valley Town Council approved an agreement with Five Star Development for the proposed Ritz-Carlton resort. That same year, Five Star released 80 Ritz-Carlton Villas for pre-sale, and all units sold within days, generating approximately $250 million in purchase commitments.

Project Timeline.

The Palmeraie Development Scope.

Upon completion, The Palmeraie will be a 122-acre master-planned community at the border of Paradise Valley and Scottsdale with multiple project components.

Project Components:

The development includes partnerships with luxury brands. FENDI Private Residences represents the fashion house's first ground-up residential project in North America, with 41 bespoke homes designed by architect Marco Costanzi—who previously designed FENDI's Rome headquarters and Private Suites. The development includes five ultra-private, "paparazzi-proof" penthouses. Only two Ritz-Carlton branded residences exist worldwide. John Hearns, Senior Vice President of Global Residential Operations for Marriott, described the project as a "labor of love."

The Madison Realty Capital Dispute

The $585 Million Construction Loan.

In May 2023, Madison Realty Capital—one of the largest private construction lenders in the United States with $22 billion in assets under management—provided a $585 million construction loan to Five Star Development. The loan was intended to support completion of the Ritz-Carlton resort, residences, and The Palmeraie retail district. Madison, co-founded by Brian Shatz and Joshua Zegen in 2004, has completed $50 billion of real estate transactions since inception.

The relationship deteriorated. In late 2023, Madison alleged Five Star defaulted on the construction loan after missing contractual construction milestones. According to Madison's court filings, the loan matured on June 1, 2025, and had not been repaid. Madison further claims it provided an additional $79 million in funding after Five Star's alleged default.

Allegations of Bad Faith and Fraud.

Five Star filed suit in May 2025, accusing Madison of manufacturing the default through bad faith conduct and seeking to take control of the property through what Five Star characterized as a "loan to own" scheme.

Five Star's Allegations Against Madison:

According to Five Star's complaint, a Madison employee forged the signature of founder Gerald Ayoub to approve unauthorized construction costs, which Madison then used as the basis for claiming default.

State Court Victory.

On May 2, 2025, a Texas state court found that Madison engaged in "acts of manipulation and fraud in breach of their duty of good faith and fair dealing." In July 2025, District Court Judge Francisco Dominguez granted a temporary injunction blocking foreclosure on a cluster of El Paso properties pledged as collateral for the construction loan.

Madison denied wrongdoing, calling Five Star's lawsuit "a last-ditch effort" to avoid contractual obligations and describing the claims as "meritless" in motions filed in June 2025. Despite the state court rulings, Madison scheduled a foreclosure sale for November 12, 2025. Five Star filed for chapter 11 on November 4, 2025—eight days before the sale—invoking the automatic stay to halt the foreclosure. Founder Gerald Ayoub stated that the bankruptcy process "provides the structure and transparency needed to bring the resort to completion and preserve the integrity of one of the most important developments in Arizona."

Chapter 11 Restructuring Strategy

Filing Objectives.

The chapter 11 filing serves several strategic purposes:

1. Automatic Stay: Protection from Madison's foreclosure and collection activity
2. Villa Sales Continuation: Proceed with closings on pre-sold Villas with clean title
3. Project Completion: Advance construction toward resort opening
4. Litigation Platform: Address Madison disputes through bankruptcy process
5. Financing Access: Secure DIP financing to fund operations

Hotel construction is in its final phase, with substantially all infrastructure complete. At peak activity, the project employed nearly 1,000 workers. The resort opening has been pushed back from the original 2023 target to 2027 due to the construction delays and financing disputes.

DIP Financing.

Sandton Capital Partners, a specialty lender founded in 2009 that has invested approximately $1.6 billion across diverse industries, committed significant debtor-in-possession financing to support the restructuring. The DIP Financing Motion sought up to $30 million initially, later revised to $47 million.

DIP Financing Terms:

Sandton specializes in DIP loans, bridge loans, and senior secured and subordinated financing with typical investment sizes between $2 million and $50 million. The DIP facility provides operational liquidity while the debtors pursue villa sales and construction completion.

Villa Sales Order.

On December 22, 2025, the Bankruptcy Court entered a Final Villa Sales Order that enables continued sales of pre-sold Villas.

Villa Sales Protections:

Lance Miller, Chief Restructuring Officer, stated that "the Court's Order gives buyers the strongest protection available under federal law." Of the 80 Ritz-Carlton Villas, 44 have already sold, with multiple others ready to close. The projected net proceeds from remaining villa sales exceed $124 million.

Prepetition Capital Structure.

The El Paso properties pledged as collateral include warehouse and distribution facilities totaling over 3.2 million square feet.

Key Disputes and Discovery

The Madison dispute remains a central issue in the bankruptcy. The debtors filed an Amended First Day Declaration on November 12, 2025, clarifying state court rulings regarding Madison's conduct. The debtors intend to file an adversary proceeding seeking lender liability and damages.

Discovery Activity. Rule 2004 subpoenas were issued on December 5, 2025, to Gerald Ayoub (company founder), Claudia Ayoub (company principal), CBRE, JLL, and Stonepeak. A Rule 2004 examination was also requested of Axos Bank, which filed a Motion to Quash the subpoena. The Official Committee of Unsecured Creditors joined the opposition to quashing, indicating the Committee views the discovery as relevant to its investigation.

Tax Lien Priority. The City of El Paso filed a Limited Objection on November 17, 2025, asserting that statutory tax liens have priority over DIP financing liens. The dispute involves liens tied to a multi-state property portfolio.

First Day Relief and Case Administration

First Day Motions and Orders.

The prepetition taxes include approximately $4.85 million in real property taxes across the portfolio, while annual insurance premiums total approximately $3.9 million. An Official Committee of Unsecured Creditors was appointed on November 18, 2025, representing creditors with claims among the 30 largest unsecured claims totaling $17.4 million. The Committee retained Stinson LLP as counsel and has been actively participating in case matters, including joining opposition to the Axos Bank motion to quash.

Professional Fees.

Professional fees in the case are listed below:

Professional Retentions and Key Parties

Professional Team.

Lance Miller, the Chief Restructuring Officer, brings 20 years of restructuring experience to the case. As Co-Founder and Managing Partner of Pivot Management Group, he leads the firm's turnaround and restructuring services. Miller served as General Counsel for Sugarfina, Inc. and American Apparel before founding Pivot, and practiced restructuring law for more than 10 years at Kirkland & Ellis LLP and Jones Day. He was recognized on the American Bankruptcy Institute's 40 Under 40 list. Miller was appointed CRO on November 3, 2025—just one day before the chapter 11 filing.

Key Parties.

Arizona Luxury Real Estate Market Context

Paradise Valley Market Dynamics.

The development is located in Paradise Valley. Paradise Valley sales are up 30% year-to-date in 2025, with listings above $10 million. Scottsdale now ranks ahead of Phoenix for total sales volume with over $6.32 billion in closed sales.

Arizona Luxury Market Indicators:

Arizona's luxury real estate market is described as growing in neighborhoods like Scottsdale and Paradise Valley. The Phoenix metro area added nearly 85,000 new residents in 2024, and Arizona has attracted over $105 billion in private-sector investment since 2020.

Luxury Hotel Development Costs.

According to the HVS U.S. Hotel Development Cost Survey 2025, the average cost to develop luxury hotels exceeds $1 million per key, with high-end projects reaching $2 million per key.

The cost data reflects a high-cost development environment for luxury hotel projects.

Loan-to-Own Strategy Context.

"Loan to own" is a distressed investing strategy where an investor acquires secured debt with the hope of converting it to equity ownership through foreclosure or a credit bid. Litigation in this area can include claims such as fraudulent transfer and lender liability.

Lender liability claims have been historically rare, but courts have found liability when lenders take active roles in directing borrower business decisions. In the Bailey Tool & Mfg. Co. case, the Bankruptcy Court for the Northern District of Texas found a lender liable for damages exceeding $17 million, concluding that even actions authorized by financing documents can give rise to liability when taken as a whole. The Texas state court found that Madison engaged in "acts of manipulation and fraud."

Frequently Asked Questions

What is F-Star Socorro / Five Star Development?

Five Star Development, founded in 1978 by Gerald C. Ayoub, is an Arizona-based real estate developer that has constructed over 20 million square feet of residential, hospitality, retail, office, and industrial properties. The chapter 11 filing involves 35 entities connected to the $2 billion Ritz-Carlton Paradise Valley and Palmeraie luxury development project. F-Star Socorro, L.P. is the lead debtor entity.

What is The Ritz-Carlton Paradise Valley project?

A 122-acre luxury development at the border of Paradise Valley and Scottsdale, Arizona, featuring a 215-room Ritz-Carlton resort (the first ground-up Ritz-Carlton in over 15 years), 80 branded Villas, 32 Estate Homes starting at $7 million, FENDI Private Residences (FENDI's first ground-up residential project in North America), and a 29-acre retail district with 60+ boutiques and 15+ restaurants including Mott 32 and Carbone.

Why did Five Star Development file for bankruptcy?

Five Star filed to halt a November 12, 2025 foreclosure sale scheduled by construction lender Madison Realty Capital, which alleges default on a $585 million loan. A Texas state court previously found Madison engaged in "acts of manipulation and fraud," but Madison continued pursuing foreclosure. The bankruptcy's automatic stay provides protection while Five Star completes villa sales and addresses the lender dispute.

What are the allegations against Madison Realty Capital?

Five Star alleges Madison employed "strong-arm shark tactics" to manufacture a default, including forging founder Gerald Ayoub's signature to approve unauthorized construction costs, failing to properly credit loan payments, inflating interest rates, and violating Arizona's RICO statute. Madison denies wrongdoing, calling Five Star's lawsuit a "last-ditch effort" to avoid contractual obligations.

What happened in the state court litigation?

On May 2, 2025, a Texas state court found Madison engaged in "acts of manipulation and fraud in breach of their duty of good faith and fair dealing." District Court Judge Francisco Dominguez also issued a temporary injunction blocking foreclosure on El Paso properties pledged as collateral.

Can buyers still purchase Villas at the Ritz-Carlton?

Yes. On December 22, 2025, the Bankruptcy Court entered a Final Villa Sales Order confirming that Villas can be conveyed with clean, insurable title, free and clear of liens. Buyers receive federal "good-faith purchaser" protection, ensuring transactions cannot be unwound on appeal. Of the 80 Villas, 44 have already sold, with multiple others ready to close.

How much DIP financing was approved?

Sandton Capital Solutions committed up to $47 million in DIP financing, with an initial $6 million drawn on an interim basis. The financing supports operations while the debtors continue villa sales and construction completion.

What is the status of hotel construction?

Hotel construction is in its final phase, with substantially all infrastructure complete. The resort features a 16,000-square-foot spa, 80,000+ square feet of outdoor event space, and a 400-foot pool. At peak activity, the project employed nearly 1,000 workers. The opening has been pushed back from the original 2023 target to 2027.

Who are the key parties in the bankruptcy?

Key parties include Madison Realty Capital (construction lender with up to $585 million exposure), Corebridge/AIG ($118.8 million in additional secured facilities), Sandton Capital (DIP lender up to $47 million), the City of El Paso (asserting tax lien priority), the Official Committee of Unsecured Creditors (appointed November 18, 2025), and RC PV Lender 1 LLC (active creditor issuing discovery subpoenas).

What is the significance of FENDI Private Residences?

The 41-home FENDI Private Residences development within The Palmeraie represents FENDI's first ground-up residential project in North America. Designed by architect Marco Costanzi (who designed FENDI's Rome headquarters), the homes average 3,500 square feet and feature five ultra-private "paparazzi-proof" penthouses.

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