Project Homekey Fallout: California Sues Developer, San Bernardino County and Multiple Cities for Breaching Obligations

California Attorney General Rob Bonta filed a lawsuit Monday against Los Angeles developer Shangri-La Industries, the County of San Bernardino, plus the cities of Redlands, Thousand Oaks, Salinas and King City. The suit alleges they breached the terms of their agreements under California’s Project Homekey program, which was established during the pandemic to provide permanent homeless housing.

As California City News reported last month, nearly two years have passed since the state awarded Shangri-La over $114 million to convert seven motels into housing. Four of the seven projects remain unfinished, while at least one of the other three is unrenovated and just 13% occupied. The properties are facing foreclosure or are encumbered by construction liens.  

Evidently, Shangri-La secured loans against the properties from third-party lenders without the state’s authorization, and then defaulted. As a result, the state says “all seven Homekey properties in which (Shangri-La Industries) was a private grantee are at risk of imminent foreclosure.” 

The developer was operating a shell-game, according to the suit, in which it “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.”

The state wants a return of all funding granted to Shangri-La and the local agencies it partnered with. It could also get a court order ensuring that each of the motel properties be designated as homeless housing for up to 55 years — something Shangri-La failed to do by recording timely use restrictions, according to the plaintiff. Another possible remedy is the appointment of a receiver for each property to ensure compliance with the Homekey program.

Read more at the San Bernardino Sun.