Shangri-La Files Chapter 11 on Four Motel-Home Conversions

Shangri-La Industries, the troubled developer of motel-to-housing conversions for homeless residents, has declared Chapter 11 bankruptcy on four projects in California.

The Los Angeles-based firm, accused of fraud by the state in connection to its state-funded conversions, filed for bankruptcy protection on former motel projects in Redlands, Thousand Oaks, Salinas and San Ysidro, the Los Angeles Daily News reported.

The court filing affects the former Good Nite Inn in Redlands, the former Quality Inn & Suites in Thousand Oaks and the former Sanborn Inn in Salinas, each funded by the state’s Project Homekey program.

It also affects a former Travelodge in San Ysidro, which was funded under the state Community Care Expansion program, according to Brian Sun, the attorney representing Shangri-La.

City officials couldn’t say how it might impact their respective Homekey projects.

Gov. Gavin Newsom launched Project Homekey in June 2020 to provide shelter for homeless residents during the pandemic. The state has allocated more than $3 billion to cities and counties to buy motels, hotels and vacant apartment buildings for permanent homeless housing.

Since 2020, the state Department of Housing and Community Development has provided Shangri-La Industries more than $121 million in Homekey funds to convert motels up and down the state into permanent supportive housing for the homeless.

Then the developer defaulted on loans tied to seven properties, and owed about $41 million in delinquent debt as of Dec. 1, The Real Deal reported. In separate court cases, lenders had sued Shangri-La and asked the court for receiverships, an alternative to bankruptcy.

In January, Shangri-La Industries lost control of six out of seven former motels for Project Homekey sites to court-appointed receivers in Salinas, King City, San Bernardino and Redlands.

After TRD reported on the defaults, the state opened an investigation into Shangri-La and found the firm had violated its operating agreements tied to six of the properties. In January, state Attorney General Rob Bonta filed a lawsuit against the firm, claiming the developer breached state contracts and alleging fraud.

A Southern California News Group investigation last year also found that lenders and contractors doing business with Shangri-Li said they weren’t paid for completed work at the former Good Nite Inn in Redlands, now Step Up in Redlands, and the former All Star Lodge in San Bernardino, now Step Up in San Bernardino.

Dozens of mechanic’s liens totaling millions of dollars have been filed over the past year at recorders’ offices in San Bernardino, Ventura and Monterey counties, the sites of Shangri-La projects for Homekey. The firm’s failure to pay resulted in more than a dozen lawsuits.

Last month, the Redlands City Council terminated its Homekey agreement with Shangri-La as the state housing regulators accused the developer of misappropriating $114 million in Homekey funds.

Sun, the attorney for the developer, said the bankruptcy filings are part of the developer’s plan to restructure and finish its commitments on the various Homekey projects.

In a lawsuit in March, Shangri-La Industries accused its former chief financial officer, Cody Holmes, of embezzling millions of dollars in company money so he and his former girlfriend could live high on the hog, placing the developer’s state-funded projects in jeopardy, including those listed in its Chapter 11 filing.

Andy Meyers, CEO of the embattled company he co-founded with the late Hollywood producer Steve Bing, has blamed the state for the firm’s delinquencies, saying that lenders triggered defaults because government officials failed to sign regulatory agreements for the various conversion deals.

— Dana Bartholomew