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   From: yourdime@outlook.com   
      
   California housing authorities have filed a lawsuit against a Los Angeles   
   developer that defaulted on millions of dollars of loans under a state-run   
   program to house the homeless in converted motels from San Bernardino to   
   the Bay Area.   
      
   In the 321-page lawsuit filed Monday, Jan. 8, in Los Angeles Superior   
   Court, the state Department of Housing and Community Development alleged   
   Shangri-La Industries and other named defendants — including San   
   Bernardino County and the cities of Redlands and Thousand Oaks — “breached   
   their obligations” under terms of their agreements with California’s   
   Homekey program.   
      
   Also named as a defendant is Step Up on Second, the Santa Monica-based   
   nonprofit that partnered with Shangri-La to provide services to the   
   homeless and to serve as the property manager at the seven converted   
   motels. More than half a dozen third-party lenders Shangri-La tapped to   
   secure loans for the motel projects also are named in the lawsuit.   
      
   “The state is taking legal action as Shangri-La has misrepresented   
   multiple financial considerations and has yet to cure a number of breached   
   contractual obligations to the state and the Homekey program. The   
   difficulties they find themselves in are of their own making,” said Pablo   
   Espinoza, a spokesperson for the Department of Housing and Community   
   Development, in an email.   
      
   The state first alerted Shangri-La Chief Executive Officer Andy Meyers and   
   Chief Financial Officer Cody Holmes of their alleged contract breach in a   
   letter dated Dec. 4.   
      
   Neither Meyers nor Holmes responded to requests for comment.   
      
   Possible remedies   
   The state is requesting several possible remedies through the court,   
   including one or all of the following:   
      
   Shangri-La and its partner local agencies return all the Homekey funding   
   granted by the state, plus attorney fees.   
   A judicial order that the defendants ensure each of the motel properties,   
   via recorded agreements with their respective counties, be designated as   
   homeless housing for up to 55 years.   
   A receiver be appointed for each property to ensure it is run in   
   accordance with the Homekey program.   
   Loan defaults   
   Shangri-La, according to the lawsuit, received more than $114 million in   
   Homekey funds from the state to convert the motels into permanent   
   supportive housing in San Bernardino, Redlands, Thousand Oaks and two   
   Northern California communities. The developer then granted and recorded   
   deeds of trust to secure loans from the third-party lenders without first   
   obtaining the state’s written authorization, as required under the Homekey   
   agreements.   
      
   Shangri-La then defaulted on the loans, causing the lenders to begin the   
   foreclosure process.   
      
   “All seven Homekey properties in which (Shangri-La Industries) was a   
   private grantee are at risk of imminent foreclosure,” the lawsuit states.   
      
   Additionally, the lawsuit alleges that for six of the seven motel   
   properties, Shangri-La and its partner agencies failed, in timely fashion,   
   to record use restrictions on the motel properties to ensure they would be   
   used solely for interim or permanent housing for the homeless for up to 55   
   years.   
      
   Homekey quagmire   
   The Southern California News Group first reported Shangri-La’s quagmire   
   involving its Homekey projects in May 2023, when it learned that more than   
   $2 million in mechanics liens had been filed at the San Bernardino County   
   Recorder’s Office by subcontractors alleging the developer failed to pay   
   them for rehabilitation work at the former Good Nite Inn in Redlands.   
   Shangri-La subsequently defaulted on its loan for the project, twice.   
      
   The Southern California News Group also learned that similar problems were   
   playing out with subcontractors who did work at Homekey-funded motel-   
   conversion projects in other cities. Among them is Adolfo Gomringer, owner   
   of Monrovia-based AG Flooring Inc.   
      
   Gomringer recently told the Southern California News Group that Shangri-La   
   still owes him $93,000 for work his company did at the former All Star   
   Lodge in San Bernardino, including demolition and installation of metal   
   framing, drywall and flooring from March 2021 through December 2022.   
      
   Though Gomringer said he checks in almost daily with the developer, he   
   said Holmes has not responded to him since October. He said he is now   
   saddled with $100,000 in credit card debt, much of which was accrued to   
   cover business expenses.   
      
   San Bernardino County was awarded $8.3 million by the state on Nov. 24,   
   2020, for the conversion of 76 units to permanent housing for homeless   
   people at the former All Star Lodge. It opened in March 2023.   
      
   Shell game   
   Gov. Gavin Newsom launched Project Homekey in June 2020 to protect   
   unhoused individuals from the threat of the coronavirus pandemic. The   
   state has allocated more than $3 billion to cities and counties to   
   purchase motels, hotels, vacant apartment buildings and other properties   
   to provide permanent housing for the homeless.   
      
   The state alleges in the lawsuit that for each of the seven motel-   
   conversion projects, Shangri-La created a shell company, in the form of   
   limited partnerships, using the address of each motel as the name of the   
   limited partnership. Those limited partnerships were named in the lawsuit   
   as the “titleholder defendants.”   
      
   “The property titleholder defendants were and remain undercapitalized and   
   were created as shells for the sole purpose of carrying out the misconduct   
   of (Shangri-La Industries) and Step Up,” according to the lawsuit.   
   “Defendant Shangri-La Industries LLC, its partners and the shell   
   businesses it controls have sought to take advantage of this program, to   
   the detriment of the State of California and its residents, for which   
   immediate and permanent relief is sought.”   
      
   Step Up   
   Step Up President and CEO Tod Lipka did not return telephone calls seeking   
   comment. In an interview with the Southern California News Group last   
   month, Lipka said he was shaken by the news about the financial state of   
   the seven Homekey projects, and stressed that Shangri-La, not Step Up, was   
   responsible for all finances and property acquisitions involving the   
   Homekey projects.   
      
   Lipka also said Step Up, like some of the subcontractors, had not been   
   paid by Shangri-La for services it provided for motels in  Redlands, San   
   Bernardino and Salinas over the past two years.   
      
   How and why   
   It remains unclear how and why Shangri-La got itself ensnared in the   
   predicament.   
      
   In October, Redlands spokesman Carl Baker told the Southern California   
   News Group that Shangri-La, after being served its second default notice   
   by lender Arixa Institutional Lending Partners, had been working with   
   Arixa to refinance the loan and address all outstanding issues. Shangri-La   
      
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