State probe finds six violations by Shangri-La in Project Homekey
Investigation involves motel conversions in Thousand Oaks, Redlands, San Bernardino
The California Housing and Community Development Agency has found a number of violations involving Shangri-La Industries’ Project Homekey developments, after the firm defaulted on seven loans tied to conversions across the state, The Real Deal has learned.
“We are aware of violations by Shangri-La Industries with respect to six of the seven Homekey properties for which it is the developer,” a representative for HCD said in a statement, adding the agency is “actively investigating this matter.”
HCD is also “coordinating” with the office of California Attorney General Rob Bonta, according to the spokesperson, and is in contact with the cities where these projects are located.
The forward movement in the investigation comes after TRD reported Shangri-La Industries, based in Downtown L.A., owes about $41.3 million under delinquent loans tied to all of its Project Homekey sites.
Shangri-La scored at least $121 million in grants from the State of California from 2020 through 2022, all dedicated to converting motels into housing for the homeless under the state program Project Homekey, according to state data. That represents about 3 percent of the total handed out by the state so far.
The firm, founded by the late Hollywood producer Steve Bing and run by Andy Meyers, has not responded to requests for comment. Its nonprofit partner on the sites, Step Up, also has not responded to comment requests.
HCD found violations tied to six properties — two in Salinas and others in San Bernardino, Redlands, King City and Thousand Oaks. In total, these projects received $114.1 million in state grants.
The properties were slated to be converted into interim or permanent housing for those who have experienced homelessness.
However, HCD has found that Shangri-La has not converted the projects in time on these six properties, constituting a violation of the Project Homekey contract.
On four, HCD also noted notices of default and mechanic’s liens — both of which constitute violations of Project Homekey covenants.
At the site in Thousand Oaks — the Quality Inn & Suites at 12 Conejo Boulevard — Shangri-La had scored $26.8 million from the state to convert the motel into 77 units of permanent housing, slated to be the first of its kind in the Ventura County city.
Shangri-La bought the motel for $18.9 million, using a $10 million loan from Calabasas-based bridge lender Private Mortgage Fund and another $1.83 million junior loan from RTI Properties, loan documents show.
Assuming it used some of the state funds for the purchase, Shangri-La still had roughly $16 million for the conversion.
In June, Shangri-La defaulted on the loan from RTI Properties, owing $115,000. It managed to cure the default for a few months, but was in default again by the end of September, according to notices of default filed with L.A. County.
A month later, Shangri-La was in default on the loan from Private Mortgage Fund, owing $10.3 million, and facing a number of mechanic’s liens.
Under state rules, a foreclosure for the property can be scheduled for Jan. 3.