California attorney general Rob 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 verdict is in — the old way of doing business is over. Join us at Inman Connect New York Jan. 23-25, when together we’ll conquer today’s market challenges and prepare for tomorrow’s opportunities. Defy the market and bet big on your future.

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

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×