The former Quality Inn & Suites in Thousand Oaks has been a semi-abandoned construction site for about the past six months. Piles of broken asphalt and construction debris sit on the property. Some wings of the old motel have fresh paint and new windows; others don’t. Tarps cover most of the roof.
Last summer, contractors bustled to transform the motel into 78 studio apartments, one for a building manager and 77 for people taking their first steps out of homelessness. Work halted when the property’s owner and developer, Shangri-La Industries, stopped paying the contractors.
Shangri-La also defaulted on its loans. Now, the property is in foreclosure.
With the future ownership of 12 Conejo Blvd. in doubt, so are the prospects for the homeless housing project. Shangri-La is unlikely to finish it, with its creditors circling and a foreclosure auction looming, though that auction has been repeatedly delayed.
Still, experts and insiders in the affordable housing world say the project could be saved, even without the $26.7 million state grant that Shangri-La used to buy, renovate and operate the property.
That grant was part of Project Homekey, which used federal pandemic relief funds to award 250 grants to developers, nonprofits and local governments to create housing and services for people who have been chronically homeless. Shangri-La was awarded seven Homekey grants totaling $117 million for projects all over the state; each project ran into some kind of trouble and the California Department of Housing and Community Development is now suing Shangri-La for violating the terms of the program.
If another owner takes the property — which appears likely, as a Ventura County Superior Court judge ruled Monday that Shangri-La’s lender can proceed with foreclosure — it won’t have Shangri-La’s $26.7 million grant. But it should still be possible to piece together the funds to finish the renovation and operate the facility, said Rick Schroeder, the president and CEO of Many Mansions, a nonprofit affordable housing developer based in Thousand Oaks.
“Project Homekey was unique. It was an awful lot of money,” Schroeder said. “But if you were able to get the tax credits, I think you can cobble together enough money. … I’m optimistic that it’s going to be sorted out and that there’s going to be supportive housing on that site.”
Re-funding the project would be ‘very complicated’
Tax credits are the most common way to finance affordable housing, Schroeder said.
They work like this: The state and federal tax codes award credits for building affordable housing. A nonprofit like Many Mansions doesn’t need the credit, since it doesn’t pay taxes on its income, so it forms a partnership with a bank or or other investor. The bank puts up the money to build the housing, and in exchange, it gets to claim the tax credit once the project is finished.
Schroeder said he thinks tax credits could cover “maybe half the cost, maybe 60% of the cost” of finishing the Quality Inn & Suites project. Forgivable loans from the state and other state and local funding sources could make up the rest of the budget.
Putting together all that financing would take “maybe a couple years,” Schroeder said. But he’s not sure whether the property would even qualify for tax credits, because usually a property has to be under the same ownership for 10 or more years.
“It’s very complicated,” he said.
Many Mansions is interested in the Thousand Oaks property and has been in touch with city and county officials about it, Schroeder said. But at the moment, he said, there are too many uncertainties for Many Mansions to move forward.
Linda Braunschweiger, the CEO of the Housing Trust Fund Ventura County, is less optimistic than Schroeder about the odds of the former Quality Inn becoming housing for the homeless anytime soon. Housing Trust fund is a nonprofit that makes loans to developers for affordable housing.
Tax credits aren’t easy to obtain, Braunschweiger said, and state loans and grants for affordable housing are also becoming scarcer.
“I don’t personally see a pathway, because you add on top of the problems that property has, the fact that affordable housing financing has been yanked from the budget to deal with the budget deficit,” she said.
City, state fight to keep site for low-income housing
On Monday, a lawyer for the California Department of Housing and Community Development appeared before Ventura County Superior Court Judge Ronda McKaig to argue for a restraining order that would have kept Shangri-La’s lenders from selling the property in a foreclosure auction. McKaig ruled against the state, clearing the way for the property to be auctioned off.
There was an auction scheduled for Tuesday outside the front doors of the courthouse. No one showed up to bid on the property, and the auction was postponed for a week. It was originally scheduled for January and has been postponed numerous times already.
There are a lot of obstacles for anyone who would try to acquire the property and finish the project. But there’s one big thing that would work in their favor, Schroeder said: the fact that they would have permits lined up as well as the support of state and local government.
“I would think that if this thing goes forward, it would be because of the doing of the state, the city of Thousand Oaks and the County of Ventura,” Schroeder said. “It would be up to them.”
“Regardless of who owns the property, the city will continue to work towards completing the Homekey project,” Thousand Oaks Assistant City Manager Ingrid Hardy said in an email. She declined to comment further.
Officials from the California Department of Housing and Community Development also declined to comment, but in the past they have stressed that their priority is making sure Shangri-La’s properties are used as housing for the homeless. That’s one of the goals of the state agency’s lawsuits against Shangri-La and its partners.
As part of its agreement with the state under Project Homekey, Shangri-La agreed to a legal restriction limiting the Quality Inn property to affordable housing for very low-income people, for the next 55 years.
However, that restriction was not put in place until after the Homekey project ran aground, and after Shangri-La’s lenders began foreclosure proceedings. The developer’s failure to file deed restrictions on its properties in a timely manner was one of the contract violations alleged in the state’s lawsuit against the company.
Schroeder said he thinks the restriction will hold up, but there might be enough uncertainty for Shangri-La’s lenders to challenge it.
An attorney for the primary lender, a Calabasas company called Private Mortgage Finance, declined to comment on the company’s behalf. PMF has plenty of incentive to fight the affordability restriction. If 12 Conejo Blvd. can only be used for low-income housing, it will have essentially zero value at auction, Schroeder said.
On the other hand, if the affordability restriction can be challenged, the property could be worth millions. It’s in a prime spot for commercial development, close to the Moorpark Road exit from Highway 101 and across the street from Janss Marketplace. When Shangri-La bought the property in 2022, it paid $18.5 million.
“They’re trying to enforce a restriction which essentially is going to make the property unmarketable,” said Morgan Delijani, the chief compliance officer for F. Roberts Construction. F. Roberts was the general contractor on the Quality Inn renovation and is suing Shangri-La for $2.9 million for work it says the developer never paid for, plus interest, legal fees and other damages.
Delijani said her company would prefer the property be sold without an affordability restriction, so there will be enough revenue from the sale to pay off the loans and still give F. Roberts and the other contractors some of what they’re owed. Or, if the restriction stays in place and a new owner is going to finish the project, Delijani said F. Roberts would like that to come with a promise to give the contractors at least some of their back pay.
“Otherwise, we’re wiped out,” she said.
State grant process was ‘highly irregular’
Delijani thinks the state is trying to cover for its own mistakes by making the lenders and contractors take multimillion-dollar losses.
“Everything about this project has red flags all over it,” she said. “There’s nothing normal about this whole transaction.”
Typically, Delijani said, when a developer wins a state grant for a construction project, the money is given in dribs and drabs, as the developer shows it’s making progress.
“Nobody hands out $27 million for a project on day one,” she said.
Many Mansions has received many grants from the California Department of Housing and Community Development, and has never gotten all of the money up front, Schroeder said.
“It’s highly irregular,” he said. “When we get money from HCD … it goes through a monthly draw process where you have to show your work, show that everyone has been paid, that your labor has been paid. It’s a really difficult process.”
Project Homekey was meant to work differently. It was funded by federal pandemic relief bills, and those dollars were intended to get out the door and into the economy quickly. Its predecessor was Project Roomkey, which used relief funds at the start of the pandemic to rent hotel rooms for homeless people who were at the highest risk from COVID-19.
“It is the innovative approach that has made Homekey such a loaded model and the envy of other states,” Pablo Espinoza, a spokesperson for the Department of Housing and Community Development, said in an email interview. “So much so that the federal government is trying to replicate its speed in disbursing funds and its positive impact on people needing a home. The program continues to show how adaptive reuse can be successful.”
Braunschweiger and Schroeder both said they see the need for removing some of the usual red tape in order to get people housed quickly. But, Braunschweiger said, “We’ve got to find a happy medium” between speed and safeguards.
“It’s just sad,” she said. “We work in the affordable housing world so hard to make these projects work and try to solve pieces of this issue, and when this happens, it sets everything back.”
Tony Biasotti is an investigative and watchdog reporter for the Ventura County Star. Reach him at tbiasotti@vcstar.com. This story was made possible by a grant from the Ventura County Community Foundation’s Fund to Support Local Journalism.
