Shangri-La Industries sued after defaulting on Project Homekey loan

Lender asks for receiver on motel conversion while state looks at “apparent violations”

Shangri-La Industries Sued Over Project Homekey Loan
Shangri-La Industries CEO Andy Meyers (Shangri-La Industries)

After Los Angeles-based Shangri-La Industries defaulted on loans tied to seven Project Homekey developments across the state, one of the lenders called its lawyers. 

In August, contractor Johnson Electronics sued Shangri-La, asking the court to foreclose on a mechanic’s lien tied to 1030 Fairview Avenue in Salinas, a motel slated for conversion into housing for the homeless, according to a court complaint. 

But after Shangri-La Industries defaulted on a loan tied to the same project in November, one of its lenders, a successor to original lender Sunday Capital, filed a cross-complaint, asking the court to appoint a receiver on the development. 

Shangri-La 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. All seven received state grants — worth about $121 million — to help support the conversions. 

California’s Department of Housing & Community Development is “actively investigating apparent violations” by Shangri-La, according to an agency spokesperson, who declined to comment further.

Shangri-La Industries’ attorneys did not respond to a request for comment. 

Receiver request

If the court approves the lender’s application for a receiver on Friday, Shangri-La will lose financial and operational control of the Salinas project. A receiver has the power to sell the property, help finish construction and distribute funds to lenders and other creditors. 

That leaves the status of the project — meant to house at least 100 people — and its future ownership up in the air. 

The lender, a Delaware-registered LLC called 1030 Fairview Loan, claimed Shangri-La failed to maintain insurance, allowed mechanic’s liens to be recorded against the property and failed to complete construction by May 13, according to the cross-complaint.

These issues are considered “serious and material defaults that justify the immediate appointment of a receiver,” the LLC argued. The failure to maintain insurance is “highly indicative that the borrower is insolvent and, therefore, unable to manage the property,” the lender said in its court filing.

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The LLC took over the loan from Sunday Capital, a private lender, which had handed Shangri-La an original $5.5 million loan on the development in 2022. It’s unclear who controls the LLC. 

Bank litigation

It’s not the first time Shangri-La has been sued by a lender over a Project Homekey-related default. 

BMO Harris Bank, one of the 10 largest banks in the U.S., sued Shangri-La and its CEO Andy Meyers in June, claiming the developer commingled funds and failed to provide “true and accurate information” on its bank accounts and inventory, according to a court complaint. 

In 2021, BMO gave Shangri-La a line of credit for $20 million, according to property records and the complaint. Two Project Homekey motels in Salinas — including the Fairview Avenue site — were eventually put up as collateral for the credit line, records show. 

By the end of August this year, Shangri-La had defaulted on BMO’s loan, owing more than the full $20 million. 

There were at least four reasons for the default, according to BMO’s complaint, including failing to provide BMO with true and accurate information about bank accounts and allowing $2.7 million in federal tax liens to be filed against the properties. 

BMO’s case was dismissed last month, according to court filings. No settlement terms were detailed. 

The Delaware LLC, the lender on the Salinas project, said without a receiver, its interest in the collateral “will be lost and materially prejudiced.”

Shangri-La Industries was started by Steve Bing, the heir of a New York City real estate fortune who moved into film financing. His Shangri-La Entertainment produced nearly 20 films. Bing died by suicide in 2020.