The company that was supposed to turn a motel in Thousand Oaks into 77 apartments for homeless people was in bankruptcy for five weeks, until Wednesday when a federal judge threw out the case for what she called “an unfair manipulation of the bankruptcy code.”
Shangri-La Industries, a Los Angeles-based real estate company, obtained $26.7 million in state funds in 2022 to buy and renovate the former Quality Inn & Suites at 12 Conejo Blvd. It was one of seven grants totaling $117 million the company received under California’s Project Homekey, a program that has awarded more than $3.5 billion since 2021 to local governments, nonprofits and private companies to develop housing and services for formerly homeless people.
Five of Shangri-La’s seven projects were never completed, including the one in Thousand Oaks. The company and the real estate partnerships it formed to buy and renovate the hotels are now deeply in debt and have been sued by numerous lenders and contractors over unpaid bills.
Shangri-La has also been sued by the state of California, which accused the company of violating the terms of the Homekey grants and asked a court in Los Angeles to make sure the properties are still used for low-income housing.
The real estate company has filed a lawsuit of its own against its former chief financial officer, blaming him for the company’s financial troubles and accusing him of using state grants and company funds to furnish an extravagant lifestyle in Beverly Hills.
In, and out, of bankruptcy court
At the end of April, the Shangri-La saga moved into federal bankruptcy court, when a subsidiary called Shangri-La Development and four of Shangri-La’s real estate partnerships, including the one in Thousand Oaks, filed for reorganizations under Chapter 11 of the bankruptcy code. The other filings were for properties in San Diego, Salinas and Redlands.
A Chapter 11 filing means the companies expected to stay in business while they worked out court-approved plans to repay their creditors — as opposed to a complete liquidation, known as a Chapter 7 bankruptcy. Both types of bankruptcies put a hold on lawsuits, foreclosures and other attempts to collect from the debtors, until the court approved a repayment plan.
Shangri-La’s respite from creditors was short-lived. The mortgage lenders for the properties in Salinas and Redlands immediately asked the court to dismiss those bankruptcy filings, claiming Shangri-La didn’t have permission from its partners to file for bankruptcy and only filed to stop the lenders from carrying out scheduled foreclosure auctions for those properties.
U.S. Bankruptcy Judge M. Elaine Hammond issued rulings dismissing the Salinas and Redlands bankruptcies last month. On Wednesday, she followed up by dismissing the Thousand Oaks and San Diego bankruptcies.
In nearly identical rulings in the first two cases, Hammond said the bankruptcies were filed in bad faith, were “only intended to prohibit a foreclosure sale,” and amounted to “an unfair manipulation of the bankruptcy code.”
The bankruptcies were thrown out of court primarily because Shangri-La’s partner on the projects, a nonprofit called Step Up that was going to operate the converted motels, didn’t sign off on the filings.
Step Up’s attorney, Matthew Bouslog, said in an email interview that Shangri-La executives approached the nonprofit about possibly filing for bankruptcy, but Step Up “had numerous concerns and unanswered questions about Shangri-La’s intentions” and “did not authorize the bankruptcy filings.”
In court filings arguing that its bankruptcies should be allowed to continue, Shangri-La claimed that it didn’t need Step Up’s consent because Step Up is no longer a member of the real estate partnerships. In 2022, according to an agreement between the two that Shangri-La submitted to the bankruptcy court, Shangri-La agreed to pay Step Up $3.6 million to buy the nonprofit’s small financial interest in the partnerships.
Step Up maintained that sale did not mean it had left the partnerships or abandoned its role as their managing general partner, and the judge agreed.
Thousand Oaks property is in flux
Even if it had been allowed to continue, the Thousand Oaks bankruptcy may not have made a big difference for the future of that property. Unlike the other bankrupt entities, the partnership known as 12 Conejo LP no longer owns the real estate it was formed to develop.
Qualfax, the smaller of the two mortgage lenders on the property, foreclosed on a $2 million debt in March and has owned the property ever since. The bigger loan was about $18.5 million, from a company called Private Mortgage Fund. Because its loan has priority, PMF could foreclose and take the property from Qualfax, said Jennifer Tullius, an attorney for PMF.
“PMF is allowing Qualfax the opportunity to try and resolve it, if they can refinance or sell the property to pay PMF,” she said.
Meanwhile, the state of California has been fighting in court to stop the lenders from selling the properties in foreclosure auctions, until the court guarantees that future buyers would have to use them for low-income housing.
Shangri-La Industries, the main corporate entity, has not filed for bankruptcy, but it has hired a consultant to oversee a restructuring and try to salvage some of its real estate projects. In a May 13 bankruptcy court filing, that consultant, George Blanco, stated that Shangri-La Industries’ owner and CEO, Andy Meyers, “has resigned from any and all positions of authority.”
Two weeks earlier, Meyers had signed the Chapter 11 bankruptcy petitions as Shangri-La’s authorized representative.
City still wants homeless housing on property
Ingrid Hardy, the assistant city manager for Thousand Oaks, said the short-lived bankruptcy filing didn’t affect the city’s plans for the property. The city’s focus, she said, is “keeping this project alive” and finding someone to finish the renovation and operate a facility with housing and services for homeless people.
City officials have been meeting regularly regarding that plan with representatives of the county, the state, Step Up, Shangri-La and the mortgage lender who now controls the property, Hardy said.
“There certainly are qualified developers and operators out there who could do this work, but, of course, it’s going to require funding, and that’s where we need to continue our conversations with the state,” she said.
The Shangri-La partnerships that declared bankruptcy did not file complete lists of their assets and debts with the bankruptcy court. They had all asked for extensions on the deadlines for those filings before the cases were dismissed. They did file lists of what they estimated were their 20 largest creditors whose debts were unsecured, which means those creditors did not have a claim on the property to back up the debt.
In Thousand Oaks, the largest unsecured creditor on the list was the County of Ventura, with about $225,000 in unpaid property taxes. The partnership also said it owed $177,000 to an architectural and engineering firm, and smaller amounts to consultants, utility providers and companies that provided security on the site.
The largest debts were not on that list, since they were secured by claims on the property. One of those debts is to F. Roberts Construction, the general contractor on the abandoned renovation project, which has sued Shangri-La for $2.9 million.
Morgan Delijani, the chief compliance officer for F. Roberts Construction, said she was glad to see the bankruptcy dismissed but isn’t optimistic about her company’s chances of getting paid.
“It’s heartwarming to see the bankruptcy judge is catching up to these bad-faith filings, but at the same time I think the bigger question is, why is the state sitting back and letting other people pay the price for their mistakes?” Delijani said.
Representatives of the California Department of Housing and Community Development declined to comment on the case, citing ongoing litigation. The department’s deputy director of communications, Pablo Espinoza, said in a prepared statement, “We remain proactive and vigilant to ensure that public funds and the purpose of those funds are protected.”
Tony Biasotti is an investigative and watchdog reporter for the Ventura County Star. Reach him at [email protected]. This story was made possible by a grant from the Ventura County Community Foundation’s Fund to Support Local Journalism.
This article originally appeared on Ventura County Star: Bankruptcy thrown out for developer of Thousand Oaks homeless project
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