The leadup to the third palace I actually love. The slow build up of the tension with the parallel plots of the Phantom Thieves looking for their next big target, the problem with the mafia, and Makoto's story, which itself has two major through lines, one being her investigation of the Phantom Thieves, and the other being the depiction of her slow mental deterioration under all the stress and unfair expectations having been placed on her. The payoff to the boiling point of all this buildup that is Makoto's Awakening is fantastic too.
Until that moment, I would argue this arc is the high point (or at least tied for it). It's after this that it goes down the hill because the villain never really evolves other than his (admittedly horrifically raised) stakes (and also lacks the personal connection to the party members that the previous two villains had), meaning the story itself effectively stalls here (because in the previous two palaces, the through line is the villain's change of heart, in this case the through line is Makoto's awakening, the villain himself is never treated as anything more than an incidental plot device to achieve that). So after Makoto's awakening, the rest of the dungeon isn't really... anything, narratively. There's not even an attempt at pathos or characterization made like with Kamoshida or Madarame, because the villain is just a cipher.
The issues with the story aside, the dungeon is also the worst designed until then (and generally one of the worst dungeons in the game), being overly long and really gimmicky (with the final gimmick being a step too far). That makes the game feel like it is dragging on at this point too. At the very least the music is great, so there is that.
But yeah, I personally would say the buildup here is amazing, it's just everything that follows that drops the ball.