The public/private partnership, with Torbay Council, involved redevelopment projects on various town centre sites over the next 20 years.
The council will now seek to negotiate with a second bidder.
McAlpine had partnered with Bristol-based Deeley Freed.
But the firm, which had hoped to sign the deal with the council by September, has now backed out.
A council statement said: "Sir Robert McAlpine and their partner Deeley Freed withdrew from the joint venture project for a combination of reasons including changing priorities within the business and the increasing weaknesses and uncertainties in the global and European economy."
Four schemes had initially been identified: the Lymington Road/Town Hall car park business centre and Terrace car park in Torquay, plus Station Lane and the Victoria centre in Paignton.