This story was produced with The California Newsroom, a collaboration of public media outlets throughout the state.
The Los Angeles real estate developer Shangri-La Industries, a major recipient of Gov. Gavin Newsom’s Homekey program, received more than $114 million in state funding to convert seven motels in San Bernardino, Ventura and Monterey counties into housing for homeless people. But instead of creating hundreds of apartments for some of California’s neediest, the company has left a trail of unpaid debts, properties facing foreclosure, buildings in receivership, and lawsuits accusing Shangri-La principals of running a financial shell game.
“In effect, Shangri-La is operating a real estate Ponzi scheme, where loans that were supposed to be reserved to complete specific projects were commingled with other funds and entities to prop-up other failing Shangri-La projects,” reads a court filing from December 8, by lawyers for a lender involved in several Shangri-La Homekey projects.
“I’m not going to respond to that allegation at all,” Shangri-La owner and CEO Andy Meyers said in an interview Friday. “We are an entity, Shangri-La Industries, and have a number of properties. But there’s no Ponzi scheme. Obviously, whomever made such an accusation doesn’t know what a Ponzi scheme is.”
So far, four Shangri-La Homekey projects sit empty and unfinished, according to records and lawsuits. Shangri-La’s three other Homekey buildings are occupied, although court documents show that a 103-room property in Salinas housed just 13 residents as of October — all in unrenovated units.
Meyers blamed Shangri-La’s financial predicament on unexpected budget overruns, permitting delays, rising interest rates, and sluggishness on the part of the state Housing and Community Development Department, which oversees the Homekey program. Specifically, he said, the state housing department has been slow to approve agreements the developer needs to record the buildings as affordable, preventing Shangri-La from getting millions in property tax breaks.
In an email, a spokesperson for the housing department said, “Shangri-La is in breach of contract.” The department said it is investigating, and declined further comment.
Shangri-La’s financial troubles are quickly unfolding in court proceedings. On Friday, a Monterey County Superior Court judge appointed a receiver to take over a vacant, partly renovated motel in Salinas, one of three Homekey projects Shangri-La has in that city.
While some of Shangri-La’s other defaults and disputes with state officials have been recently reported, a months-long investigation by KCRW and The California Newsroom finds allegations of wrongdoing buried in court documents that have not yet been brought to light.
The emerging scandal speaks to a question on a lot of Californians’ minds: If Newsom’s fight against homelessness is costing more than $20 billion, why isn’t the crisis getting better?
“It’s not just voters that are concerned, it’s the entire state legislature,” said Democratic State Sen. Dave Cortese of San Jose, who was part of a bipartisan group of lawmakers that asked the state auditor to analyze homelessness spending earlier this year. Cortese said he wasn’t familiar with Shangri-La or its troubles, but he’s hopeful the forthcoming report will shed more light on how money for the homelessness crisis is being spent.
“We’re going to find out if there’s a lot of stories like the one regarding Shangri-La, or if that’s an unusual situation,” he said.
Facing foreclosure in Redlands
When Gov. Newsom launched Homekey in 2020, local governments up and down the state were typically tackling homelessness by putting people in shelter beds or investing in new construction. Convinced that converting under-utilized motels and hotels into studio apartments was quicker and more cost-effective — especially during the financially precarious days of the pandemic — Newsom’s office created Homekey grants to do just that. The tally so far is more than $3 billion.
“Homekey is changing thousands of lives statewide,” Newsom said at the ribbon-cutting for a Shangri-La Homekey project in Redlands, which he attended virtually last December. He praised the project for providing “dozens of people with shelter, critical resources, and community,” according to the city’s website.
But a lender began foreclosure proceedings on the Redlands building less than a year later. A San Bernardino Superior Court judge approved the lender’s request to have a court-appointed receiver take over the property, effective Jan. 1, court records show.
Currently, there are no indications that the building’s approximately 100 tenants will have to move; they’re receiving services such as case management and mental health care, by the Santa Monica-based nonprofit homeless services provider Step Up on Second Street, which is partnered with Shangri-La on all its Homekey projects.
The Redlands project’s path to being taken over by an outside party reflects a pattern with Shangri-La’s Homekey undertakings: Get a state award, secure additional funding or credit from private lenders — then stiff those lenders.
After being awarded a $30 million Homekey grant for the Redlands conversion in March 2022, Shangri-La borrowed $12 million from Arixa Institutional Lending Partners and took out a $20 million credit line from BMO Harris Bank, according to lawsuits and state records. The records show Shangri-La defaulted on both.
The situation has also created trouble for government officials in Redlands. Under the terms of Homekey, the city is also an applicant for the project. Redlands Public Information Officer Carl Baker said the money went directly to Shangri-La — not through city coffers. But in a letter to Shangri-La principals and Redlands Mayor Pro Tem Paul Barich dated December 4, the state’s housing department wrote that both the developer and the city breached their Homekey agreement by using the building to secure the Arixa and BMO deals.
“We've been in contact with Shangri-La, we've been in contact with the state,” said Baker. “I know that the state is invested in seeing that this project succeeds, and so are we.”
“Overages and delays” in Thousand Oaks
The same pattern is apparent in Ventura County, where Shangri-La was awarded $26.7 million in Homekey funds last year to transform a 78-room motel in Thousand Oaks, state records show. Thousand Oaks Assistant City Manager Ingrid Hardy said the cash, which went straight to Shangri-La, was supposed to cover the purchase, renovation, and some operating costs. Property records show that Shangri-La then borrowed more than $10 million from private lenders. The company has since defaulted on payments. The property is now going through the foreclosure process.
Shangri-La also racked up $1.9 million in liens from subcontractors on the Thousand Oaks building, according to property records. The motel sits empty and unfinished.
When asked about Shangri-La’s need for money from private lenders on top of the Thousand Oaks Homekey funds, Meyers pointed at forces beyond his control.
“Well, there were overages, and there were delays in the closing” caused by the state, he said. “And the price of the property went up $5 million at the end, as the seller wanted to back out with all the delays.”
It’s unclear if a $5 million price bump for the Thousand Oaks property occurred. In May 2022, the building was valued at $18.2 million, according to an appraisal submitted to state housing officials by Shangri-La and obtained by KCRW through a public records request. In October, Shangri-La bought the former motel for $18.9 million – an increase of just $600,000 over the appraised value. Meyers didn’t respond to a follow-up email seeking clarification.
In the interview, he said Shangri-La continues to work on refinancing its Homekey projects.
That’s been difficult, court records show. In a December email exchange that was submitted in court, a Shangri-La lender at the firm Sunday Capital reached out to a second lender that had agreed to refinance a project in Salinas, asking when the deal would close.
“Hello,” the second lender replied, “we are not doing this loan anymore due to a lot of fraudulent activity, so we have passed on the deal. Thanks.”
In King City: “I’d just like to know where the money is”
Shangri-La’s troubles also reach King City, in Monterey County, where the company received $12.2 million in Homekey funds in mid-2022 to convert an approximately 45-unit motel. Once again, the developer got the funding directly, said King City Mayor Mike LeBarre. The grant was supposed to cover the purchase price, renovation, and on-site services for four years, he said. Shangri-La took out a $4.3 million private loan on the property, which violates Homekey rules, according to a notice sent to the developer by the state housing department. The project remains unfinished and is more than a year past its target opening date.
"It’s so frustrating,” said LeBarre. “If it was fulfilled, we would have people right now in permanent supportive housing, getting the things that they need to better their lives.”
LeBarre said the city is paying hotel bills to put up about 40 unhoused people who’d expected to move into the Homekey project. He said Step Up is working with the city to provide services at that location.
“I never expected this,” said LeBarre. “I’d just like to know where the money is.”
State officials miss clues about so-called ‘financial powerhouse’
One of Shangri-La’s selling points as a Homekey developer was its financial strength. In a 340-page packet of documents sent to the state housing department in April 2022 by Shangri-La/Step Up, and obtained by KCRW and The California Newsroom through a public records request, its executives claimed it was a “financial powerhouse.” Shangri-La Industries and its development subsidiaries, Shangri-La Construction and Shangri-La Development, have ties to Shangri-La Entertainment, which was founded by the late film producer and philanthropist Steve Bing. In the materials, Meyers even pledged to commit up to $275 million to the company’s Homekey projects.
When asked about that personal pledge on Friday, which bears his signature, Meyers said, “I’m not really sure what you’re talking about.”
Asked whether he’s able to pay Shangri-La’s Homekey-related debts out of his own pocket, Meyers said, “We are working on doing exactly that.”
If state officials had looked closer at Shangri-La’s history of legal troubles, or at the details of the financial documents submitted in April 2022, they might have seen some warning signs.
For example, a few months before sending the materials, in January, Wells Fargo Bank sued Shangri-La’s construction arm, as well as Meyers and Holmes, accusing the company principals of “conspiracy to defraud.” The suit alleges that “Meyers and Holmes personally withdrew substantial sums of money from Shangri-La for their personal benefit.” It claims that in late 2021, they deposited $3 million in bad checks into a Wells Fargo account, and then moved more than $100,000 to their personal accounts at other banks. The checks bounced and the entire $3 million was returned for insufficient funds, according to the lawsuit.
Meyers said he is “looking into” the allegations in the Wells Fargo suit and claims made by plaintiffs in other lawsuits.
The packet of financial documents to the state included a letter from Shangri-La Chief Financial Officer Cody Holmes promising that a Shangri-La affiliate called HM Land Development could commit up to $100 million to the company’s Homekey projects. The letter was accompanied by a tax form listing a handful of income properties owned by HM, including a condo at Downtown LA’s ritzy LA Live complex; but HM had received a default notice about that property more than six months earlier, according to county records. The records show that the condo eventually went into foreclosure.
Meyers said he didn’t “have the exact information” to answer questions about HM’s portfolio.
Holmes, the CFO, has not responded to multiple requests for comment.
A longtime partnership
Step Up, Shangri-La’s partner in all of its Homekey projects, has a considerable track record in homeless services, including running more than a dozen supportive housing projects throughout Southern California. In the materials sent to the state, the nonprofit claimed that its previous motel-conversion work “was an early genesis of what eventually became the landmark Homekey program.”
Shangri-La and Step Up have been partners on projects that pre-date Homekey. The organizations previously received funds through the City of LA’s Proposition HHH bond measure for five homeless housing projects, including two that opened last year on the Veterans Affairs campus in West Los Angeles, and one troubled building in Westlake that KCRW reported on in 2020. Shangri-La and Step Up are also partnered on projects in Tennessee and North Carolina, some of which have run into delays.
The two companies even employed the same CFO, Judson Leibee, who worked for Shangri-La from 2009 to 2016, and then at Step Up from 2017 to 2023, according to his LinkedIn profile. Leibee declined to comment for this story.
In an interview, Step Up President and CEO Tod Lipka said he’s “shocked and very dismayed” by Shangri-La’s defaults and financial issues with Homekey projects.
“Our partnership is one in which we both have our lanes,” Lipka said. “So, essentially, Shangri-La handles all the financing of the projects … and then they deliver it to us. We were given reassurances on an ongoing basis that work would resume, the problems would get resolved by Shangri-La, and on and on. ”
Lipka said Step Up wasn’t notified of Shangri-La’s defaults on Homekey projects until this fall.
He said Step Up never received any Homekey money directly and is currently providing services on the three occupied projects, even though “much of the cost of those services has not been reimbursed to Step Up” by Shangri-La.
“Maybe in retrospect, we could’ve done more due diligence,” he said.
