LA developer hit with lawsuit for homeless housing scheme

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An LA developer involved in California’s homeless housing program has been sued by the state’s attorney general, Rob Bonta, for allegedly engaging in a Ponzi scheme on projects it was involved in, the LA Times reported last week.

Bonta claimed in a civil lawsuit filed in LA County Superior Court that Shangri-La Industries illegally put developments in the state’s Project Homekey homeless housing program under threat by borrowing against them.

The lawsuit complaint alleges that the developer took out loans on six out of seven properties without first gaining approval from the state or recording required affordability restrictions on the properties. The state only learned about the issue after receiving default notices from banks, and now all seven properties are at risk of foreclosure, the lawsuit alleges.

The state is seeking out $100 million in Project Homekey funds from Shangri-La Industries and is requesting the court to place the properties in receivership.

Other defendants named in the lawsuit include Shangri-La CEO Andy Meyers, homeless housing and service provider Step Up On Second, several LLCs that hold title to the properties, several lenders, and cities and counties in which the projects are located. Three projects are based in Riverside, San Bernardino, and Thousand Oaks, and four of the projects are in Northern California.

Step Up CEO Tod Lipka said that the organization had successfully worked with Shangri-La in the past and was “devastated” about the potential effects of the lawsuit on the organization’s clients.

“For us, the danger is that these projects are stalled and not going to move forward,” he told the LA Times.

Lipka also said Step Up was only involved in the projects as a service provider and was not involved in the acquisition or financing of the projects. He said that the organization was made aware of the loans taken out by Shangri-La, but was told by the developer that they were acceptable and necessary in order to complete the project. Only a few months ago, Step Up began to learn of the negative legal implications of the loans. He added that the organization is building in new processes for due diligence “to ensure this will never happen again.”

California’s State Department of Housing and Community Development, the administrator of Project Homekey, said that Shangri-La “has misrepresented multiple financial considerations and has yet to cure a number of breached contractual obligations.”

According to the lawsuit complaint, the seven projects received more than $114 million in Project Homekey contributions, and outside loans that totaled about $96 million. The loans violated Project Homekey contracts, which stipulate that affordability restrictions are recorded in advance of any other loans. Loans must also have been approved by the state in advance.

“The difficulties [Shangri-La] find themselves in are of their own making,” housing agency general counsel Ryan Seeley said in a statement.

Email Lillian Dickerson