F-Star Socorro, L.P. - Case Summary

Business Description The Debtors are a commercial real estate company, controlled by founder Gerald C. Ayoub, that develops and invests in a diversified port...

Business Description

The Debtors are a commercial real estate company, controlled by founder Gerald C. Ayoub, that develops and invests in a diversified portfolio of residential, hospitality, retail, office, and industrial properties. The portfolio includes a collection of commercial and industrial assets in El Paso, Texas, and a flagship 122-acre ultra-luxury mixed-use development in Arizona.

The Debtors' primary development is The Ritz-Carlton, Paradise Valley, Palmeraie, a master-planned luxury destination located at the border of Paradise Valley and Scottsdale, Arizona. The Project is the first in the U.S. to integrate a new-build Ritz-Carlton resort, branded residences, and a luxury retail district in a single walkable environment. Its three main components include:

The Ritz-Carlton, Paradise Valley Resort: A newly constructed, 215-room ultra-luxury hotel that will be operated by a subsidiary of Marriott International, Inc. Amenities include a 16,000-square-foot spa, over 80,000 square feet of outdoor event space, a 400-foot signature pool, and globally recognized restaurants such as Mott 32 and Carbone.
Ritz-Carlton-Branded Residences: A resort-integrated community comprising 80 Villas, which are fully pre-sold, and 32 private Estate Homes. The homes feature direct access to the hotel and retail district, with additional residential phases approved for future development.
The Palmeraie: A 29-acre district planned to feature approximately 160,000 square feet of luxury retail, dining, and experiential offerings. The Debtors note that multiple global luxury brands have executed leases or letters of intent.

In addition to the Arizona Project, the Debtors own and manage a portfolio of commercial and industrial properties in El Paso, Texas, developed and managed in-house by the Five Star team. This portfolio includes:

Over 2.4 million square feet of net rentable area across three fully occupied warehouse and distribution facilities: the Joe Battle Property, the 11751 Alameda Property, and the 1340 Bob Hope Property. These properties are fully leased to thirteen tenants under long-term agreements expiring between 2026 and 2036, with average in-place rents approximately 30% below market.
An 860,000-square-foot vacant warehouse and distribution facility (the 11891 Alameda Property).
Over 107 acres of vacant developable land.

Corporate History

Founded in 1978 by Gerald C. Ayoub, Five Star established its business in the El Paso/Ciudad Juarez border region. A significant expansion occurred in May 2007, when the Debtors acquired a 122-acre site from a Marriott affiliate following a competitive bidding process to develop a mixed-use luxury destination.

Following the acquisition, the Paradise Valley Town Council approved construction in early 2016, with the City of Scottsdale granting its approval in 2017.
Demonstrating strong market demand, all 80 Ritz-Carlton Villas were pre-sold within days during a single residential release in 2016, generating approximately $250 million in purchase commitments before vertical construction began.
Vertical construction of the hotel and residential components commenced in 2018 and proceeded through the Covid-19 pandemic. By 2023, the Hotel and Residences were nearing completion.

Operations Overview

The Debtors report that the Arizona Project is substantially complete, with all major infrastructure in place and ready for the final phases of construction. Hotel construction is in its final phase, with luxury interior finishes set to begin pending court approvals.

The residential component of the Project, which includes 80 Ritz-Carlton-branded Villas, is a critical element designed to establish a year-round community that enhances the performance of the hotel and retail district. The status of the Villas as of the Petition Date is as follows:

Forty-four Villas have closed and are fully occupied by residents.
Twenty-nine Villas are under contract for sale to third-party buyers in pending transactions.
Seven Villas were previously under contract, but the contracts have since been terminated and are available for future sale.

The Debtors anticipate that the pending and future Villa sales will generate at least $124 million in net proceeds. Several of the pending transactions were scheduled to close in November, with some expected to occur within a week of the Petition Date. The remaining Villas under contract are in various stages of construction, with many reported to be near completion.

Prepetition Obligations

The Debtors' prepetition capital structure includes significant secured debt related to both their Arizona and Texas assets.

Madison Construction Loan

On or about May 11, 2023, certain Debtors entered into a Construction Loan Agreement with Madison Realty Capital providing for up to $585 million in funding for the Arizona Project.
The loan is secured by collateral in both Arizona (the Ritz-Carlton Resort, Villas, Estate Homes, and Palmeraie parcels) and Texas (the 1340 Bob Hope Property and certain Alameda properties). The facility is personally guaranteed by Ayoub.
The Debtors note that substantial disputes exist regarding the amount owed under the loan, as Madison claimed on May 21, 2025, that the facility had been fully funded and no funds remained to complete construction.

AIG/Corebridge Loans

Alameda Corebridge Loan: On Dec. 27, 2023, Debtor F-Star Socorro Holding Co., LLC entered into a $77 million loan agreement with AIG Asset Management (U.S.), LLC.
- The loan is secured by the 11751 Alameda Property in El Paso, Texas, and is personally guaranteed by Ayoub.
Joe Battle Corebridge Loan: On Dec. 27, 2023, Debtors 5 Star Tech I, L.P., 5 Star Tech II-1, L.P, and 5 Star Tech II-4, LP entered into a $41.8 million loan agreement with AIG.
- The loan is secured by the Joe Battle Property in El Paso, Texas, and is also personally guaranteed by Ayoub.

Events Leading to Bankruptcy

The Debtors' financial distress and subsequent Chapter 11 filing stem from disputes with their senior secured lender, Madison Realty Capital, which allegedly engaged in a "loan to own" scheme that stalled the Arizona Project. According to the Debtors, Madison slowed and ultimately halted funding in early 2025, interrupting progress on the development.

The Debtors allege that Madison took several actions to over-lever the Project and engineer defaults under the Construction Loan Agreement (CLA), including:

Allowing and encouraging general contractors to exceed budget controls to accelerate the burn of loan proceeds.
Directing contractors to prioritize the completion of the Residences over the Hotel to disrupt the overall project timeline and maximize Madison's near-term returns.
Engineering alleged "defaults" to force the Debtors to provide releases of liability, thereby clearing a path for foreclosure.

Prepetition Litigation

The dispute escalated into litigation across multiple jurisdictions. On April 9, 2025, Madison declared a default under the CLA and scheduled a foreclosure sale of the Debtors' Texas collateral. In response, the Debtors commenced an action in Texas state court to enjoin the sale.

Following a two-day evidentiary hearing, the Texas court granted a temporary restraining order on May 2, 2025, finding that any default "was artificially instigated, induced, and caused by (Madison's) acts of manipulation and fraud in breach of their duty of good faith and fair dealing."
On July 1, 2025, the Texas court issued a temporary injunction halting the foreclosure pending trial, ruling that the Debtors had demonstrated a "probable right of recovery" and that "bona fide issues" existed regarding Madison's conduct and the loan balance. Madison later abandoned its appeal of the injunction.
Just two days after the Texas injunction was issued, Madison initiated a foreclosure sale of the Arizona collateral, scheduled for Nov. 12, 2025, based on the same alleged defaults. The Debtors filed a separate lender liability action against Madison in Arizona state court, which remains pending.

Chapter 11 Filing

The Debtors state they commenced these Chapter 11 proceedings to halt Madison's foreclosure efforts in Arizona and bring the lender's "collection efforts and forum shopping to a conclusion."

Separately, the Debtors note that their other lender, Corebridge, has noticed events of default under the Alameda and Joe Battle loans related to alleged failures to meet certain insurance and tax obligations. The Debtors report they are engaged in constructive discussions to resolve these issues.