Developer study says Paradise Valley Ritz-Carlton proposal hangs millions in the balance

A rendering of what the lobby building and venue may look like at the Paradise Valley Ritz-Carlton resort community. (Submitted graphic)

A rendering of what the lobby building and venue may look like at the Paradise Valley Ritz-Carlton resort community. (Submitted graphic)

A new report commissioned by the developer of the proposed Paradise Valley Ritz-Carlton resort community contends the project will generate $5.3 million per year in sales tax revenues for the town — more than $33 million over the next 10 years — and nearly $10 million in one-time sales tax revenues and permit fees related directly to construction of the project.

Those revenue projections are based on a schedule of development, which includes a 200-room hotel, additional residential suites, detached housing and additional retail and restaurant operations, beginning in late 2015 with completion by the end of 2023, according to the financial projection report.

The revenue projection report was provided to the Town of Paradise Valley Independent from representatives of Five Star Development. The report’s author is listed as Dr. Timothy Hogan, professor emeritus of economics at the W.P. Carey School of Business at Arizona State University.

Scottsdale-based Five Star Development is preparing a 105-acre swath of land an arrow’s shot from Scottsdale and Lincoln roads for a Ritz-Carlton project that includes six development-area characteristics:

  • Area A: 200-room resort on 18.1 acres
  • Area A1: 120 resort-branded villas
  • Area B: 80 single-family homes on 31.3 acres
  • Area C: 45 resort-branded, single-family homes on 22.5 acres
  • Area D: 74 townhomes on 8.8 acres
  • Area E: In-flux design as deannexation of 12.9 acres is yet to be determined

Town officials say the project will encompass 1,666,013 square feet with a lot coverage of 26.3 percent. The first plan was put to a public vote in November 2008 and Paradise Valley residents overwhelmingly approved the resort project by a more than 2-to-1 margin.

“Basically I was provided most of it by Five Star development,” said Dr. Hogan in a Nov. 10 phone interview.

The “it” Dr. Hogan refers to is information provided by the client to “present the results of an analysis of the direct tax revenues for the Town of Paradise Valley” that would be generated by the future Ritz-Carlton, the report states.

“They told me in terms of the hotel, which is based on Ritz-Carlton rates. I was given what the construction timeframe is and when it would actually start and estimated room charges and the expected occupancy rates over time.”

Dr. Hogan described the revenue projections as simple arithmetic.

“Once I have that information I can estimate the total revenue and apply the tax rates and you end up with the occupancy tax rate,” he explained. “The same for the retail space and the restaurant that are located in that area you mentioned — Area E. It is really a straightforward process. You figure out the dollar amounts.”

Paradise Valley Town Council Thursday, Nov. 5 hosted a joint meeting with its Planning Commission to give residents a chance to speak on the development proposal and to hear members of the commission speak on their respective recommendation votes.

The commission voted 5-2 Oct. 20 to send the proposal to the town council. Commission members Thomas Campbell and Richard Mahrle were the dissenting votes.

Two members of the commission — Daran Wastchak and Scott Moore — now say they, too, would have opposed the proposal if at the time they would have known the developer was planning on adding 14 homes to Area B.

That change occurred some time between the Oct. 20 commission vote and the Nov. 5 joint public meeting, records show.

Dr. Hogan couldn’t say for sure which plan he was assessing with his revenue projections.

“I was given a hypothetical (on the commercial space) with part of it being retail and restaurants,” Dr. Hogan said of portions of the proposal including Area E, where a boutique hotel may be constructed. “Those numbers did not include the boutique.”

Tom Evans, a spokesman for Five Star Development, says negotiations about the possible deannexation of Area E into Scottsdale have stalled.

“Some of Area E is in the study,” he said in a Nov. 10 phone interview. “He was given a set of assumptions based on what has been proposed. We are proceeding in Area E with the Town of Paradise Valley. We are talking with the town now about what kind of land uses are appropriate.”

In his summary, Dr. Hogan concludes:

  • Once completed, the proposed Ritz-Carlton resort development would generate $5.3 million per year in sales tax revenues for the Town of Paradise Valley. Over the 2014-24 period, the town’s sales tax revenues produced directly from the hotel and the other commercial activities planned as part of the development would total more than $33 million.
  • In addition, the proposed development would generate almost $10 million in one-time sales tax revenues and permit fees to the Town of Paradise Valley related to the construction of the project.

The assumptions provided by Five Star Development Dr. Hogan evaluated seem to be reasonable and conservative, he contends.

“I looked at the assumptions they gave me — I didn’t do an exhaustive evaluation — but they seemed to be reasonable and conservative,” he said of specific sales tax projections spanning 2015-24. “I think if anything the tax revenues generated by the project that will come might be higher because over time inflation will be a factor and the fact room charges could be going up over time. This was all done in current dollars as of this year.”

An evaluation of the report

Paradise Valley Councilman David Sherf, a longtime hotel professional, says the report authored by Dr. Hogan does not provide assumptions provided by Five Star Development.

David Sherf

David Sherf

“The report is based upon important assumptions provided by Five Star Development and (it) does not provide any of the assumptions the author utilized in the various projections of revenues, thus it is hard for a reader to judge the validity of the report,” he said in a Nov. 11 written response to e-mailed questions.

Councilman Sherf was provided the same documents as the Town of Paradise Valley Independent.

“I think the town`s portion of bed tax and sales tax revenues, as projected, are reasonable based on my own estimates of what I think the resort revenues would be when the resort is operating on a stabilized basis,” he said of the validity of portions of the report.

“I have no idea if the revenues generated from the retail/restaurants/commercial leases are valid, as Five Star Development has not submitted a site plan for Area E, which is where the retail and restaurants were, at one time, planned for development. Without knowing the assumptions on the amount of space and type of uses planned for Area E, I cannot provide an opinion.”

Councilman Sherf says the revenue projections cannot be confirmed as presented.

“The revenue projections for construction sales taxes and building permit fees cannot be validated without knowing the assumptions for construction costs and  building sizes,” he said. “Without question, the resort and associated residential development will generate one-time construction sales tax revenues and the resort will generate ongoing sales and bed tax revenues, though the range of amounts cannot be validated because a reader does not know the assumptions used for the revenue projections.”

Councilman Sherf says the resort revenue projections are reasonable.

“I think the revenue projections for just the resort are reasonable, but I cannot provide an opinion on the revenue projections for the remaining 72 percent of the project,” he explained.

“These summary reports, which are devoid of the detailed assumptions used to project revenues do not carry much weight with me. This report does point out the various sources of revenue that would accrue to the town and the one time nature of some revenues as well as the sources of annual recurring revenues. Unfortunately, the revenue amounts in the report cannot be validated by a reader for reasonableness.”

Paradise Valley Town Council is expected to begin its deliberations of the proposed Ritz-Carlton resort community later this month.

Northeast Valley Managing Editor Terrance Thornton can be contacted at

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