Even with $120M in state grants, Shangri-La Industries can’t repay loans
LA firm owes $41M in defaulted debt tied to seven Project Homekey motel conversions
UPDATED, Dec. 1, 2023, 9:40 p.m.: In 2020, the State of California gave Shangri-La Industries, a developer based in Downtown L.A., about $7 million to convert a Good Nite Inn motel into 100 units of housing for those struggling with homelessness. The grant was one of the first handed out under the state’s conversion effort, named Project Homekey.
It wasn’t the only cash Shangri-La Industries scored for the project in Redlands. It spent $12 million to buy the motel, using a $5.8 million loan from TerraCotta Credit REIT, records show.
The debt continued to pile up. In 2021, Shangri-La also scored a $20 million credit line from BMO Harris Bank tied to the Good Nite Inn and another project in Salinas. The firm also scored loans from Lone Oak Fund, Forbix Capital and Sunday Capital in 2022, all tied to the Good Nite Inn at 1675 Industrial Park Avenue.
By the end of August this year, Shangri-La had defaulted on the loan from BMO Harris Bank, owing almost $19 million. The firm had scored two different forbearance agreements in an effort to hedge against rising rates, but could not avoid default.
Shangri-La scored at least $121 million from the State of California from 2020 through 2022, all dedicated to converting motels into housing for the homeless under Project Homekey, according to a TRD analysis of state data.
But the funds have not proved enough to keep Shangri-La afloat on these projects.
The company has defaulted on loans tied to seven hotels slated for Project Homekey conversions over the last six months, according to property records and county notices of default. That’s all of the firm’s hotel projects that received state grants.
Shangri-La owes about $41.3 million under the delinquent loans — an amount that is set to keep accruing until the debt becomes current.
In addition to the Redlands site, the properties are located in Salinas, San Bernardino, King City and Thousand Oaks.
The firm’s CEO Andy Meyers did not respond to a request for comment.
With the defaults, Shangri-La could lose all seven hotels. The fact the hotels are tied to Project Homekey makes it more complicated — lenders on the debt could foreclose and sell the properties to a party that may not want to keep the properties as affordable.
“We are aware of these troubling reports regarding Shangri-La Industries,” a spokesperson for California’s Department of Housing and Community Development said in a statement, adding the agency is conducting a “focused investigation into this matter.”
For each Project Homekey property, cities essentially hire a developer to acquire, renovate and operate the sites. The developers are paid with city tax dollars over a number of years.
Shangri-La may have its toe in affordable housing now, but it has roots in a family fortune.
The firm was born out of the wealth of Leo Bing, the founder of New York City-based development firm Bing & Bing, which was known for building apartments for the rich.
“Bing & Bing buildings still pack a wallop in the world of Manhattan real estate, oozing cachet,” The New York Times wrote in 2006.
Bing passed on his real estate fortune to Steve Bing, who became a Hollywood producer and film financier. He founded Shangri-La Entertainment, and eventually, Shangri-La Construction and Shangri-La Industries. Bing, best known for producing the holiday movie “The Polar Express,” died by suicide in 2020.
Meyers was tapped in 2000 as Shangri-La’s CEO, two years after graduating from UCLA, according to his LinkedIn profile. One of Shangri-La’s first projects was an airplane hangar at Burbank’s Bob Hope Airport.
Another was the redevelopment of the Commercial Exchange Building at 8th and Olive Street in Downtown L.A. — the firm converted the building into the 226-key Freehand Hotel.
Shangri-La’s construction arm has worked on a number of high-end real estate projects, including the Mr. C Beverly Hills hotel and condo project, which sold in 2021 for $80 million.
But by 2020, the firm had its sights set on Project Homekey to take advantage of Gov. Gavin Newsom’s initiative to convert motels into homeless housing.
Last year, Shangri-La scored $26.8 million from the state to convert the Quality Inn & Suites in Thousand Oaks into 77 units of permanent housing, the first of its kind in the Ventura County city.
About 83 percent of the funds were designated as “capital” — costs associated with acquisition or rehabilitation. The rest was slated for operations.
HCD rules do not dictate exactly what the funds can be used for, but states “eligible costs must be project related and the project must directly support the target population.”
Shangri-La bought the motel at 12 Conejo Boulevard 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 could be scheduled for Jan. 3.
Construction of the project is slated to be finished by the end of this year, Meyers told the Thousand Oaks Acorn in August. It was originally set to be finished by the end of 2022.
To buy the former Good Nite Inn in Redlands, Shangri-La had scored a $12 million loan from Arixa Capital, a private lender based in Westwood, in June 2022. It also had a $30 million grant from the state’s Project Homekey, its largest grant to date.
By May, the firm was in default on the loan. As with the Thousand Oaks property, it managed to cure the default temporarily.
As of Sept. 11, Shangri-La owed $332,000 under the loan.
“We understand that Shangri-La has been working with the lender to refinance the loan and address all outstanding issues,” a spokesperson for the City of Redlands told the Redlands Daily Facts in October.
The project is not yet finished, according to the website for Step Up America, the nonprofit operating partner of Shangri-La on a number of Project Homekey properties.
“Stay tuned for details,” the website reads.