Asheville Mayor Esther Manheimer told BPR the city will no longer be working with the partners of the Ramada Inn project which was set to convert the old motel into permanent shelter for more than 100 unhoused people.
The decision followed a California lawsuit filed yesterday that alleged partners Shangri-La, a developer, and Step Up, a nonprofit, of $100 million in fraud and breach of contract.
The pair pledged to bring “lifesaving help” to Asheville’s homeless individuals by converting the Ramada Inn into permanent supportive housing in late 2021.
Now the partners face a lawsuit filed Monday in California for allegedly violating the contracts they have with the state housing authority.
Step Up and Shangri-La were grantees of the Homekey program, an initiative by California Governor Gavin Newsom’s administration to fund local, state and regional projects to house target populations. The program, administered by the California Department of Housing and Community Development, provided more than $114 million to the partners for the conversion of motel properties to shelter for the unhoused.
The lawsuit, filed by the attorney general on behalf of the department, alleges that the two entities violated the terms of Homekey contracts by selling or financing the properties to other parties without the permission of the department, by not complying with the restrictions required on the properties and by failing to pay contractors who performed renovation work.
“The state is taking legal action as Shangri-La has misrepresented multiple financial considerations and has yet to cure a number of breached contractual obligations to the state and the Homekey program,” a spokesperson for the department said in a statement to BPR.
“The difficulties they find themselves in are of their own making. This is clearly spelled out in the complaint. The [California Department of Housing and Community Development] will continue to make every effort to ensure Homekey dollars go toward housing individuals experiencing homelessness, and not enriching developers.”
The department asked the court to require the partners to return their Homekey funds to the state.
“Shangri-La Industries LLC, its partners and the shell businesses it controls have sought to take advantage of this program, to the detriment of the State of California and its residents,” the filing said.
According to the complaint, “All seven Homekey properties in which SLI [Shangri-La Industries] was a private grantee are at risk of imminent foreclosure.”
Step Up CEO Tod Lipka told BPR the organization is “surprised and shocked at the failure of Shangri-La to implement the Homekey projects according to [California Department of Housing and Community Development] requirements.”
Lipka said Shangri-La was “solely responsible” for funding the projects, but the court filings show Lipka’s signature on the Homekey contracts.
“We were informed that Shangri-La was making new loans and when we questioned them on why they were doing this, we were given reassurances by Shangri-La that they would repay the loans and they were necessary for the equity that Shangri-La was contributing to make the deal work and that construction and material costs were rising and the loans were to be used only for the projects,” Lipka told BPR in an email.
The lawsuit follows an investigation by the department into Shangri-La and Step Up on seven California renovation projects.
The move is the latest in a string of legal challenges for the California developer.
The allegation that contractors who performed work on Homekey projects were not paid, resulting in mechanics liens on the properties, mirrored a situation with an Asheville contractor over initial demolition of the Ramada Inn.
Contractor Beverly-Grant alleged nearly $400,000 of unpaid work in a lawsuit filed against Shangri-La. In December, the contractor obtained a default judgment for the claim.
What’s next for Asheville?
The future of the Ramada Inn, which once housed some of the city’s most vulnerable, remains uncertain. Shangri-La lost ownership of the property to a lender, Stormfield Capital, in December due to default on a $6,337,500 loan made in September 2022.
Asheville Mayor Esther Manheimer told BPR the California situation differs from the Ramada Inn project.
“The only money the city spent on this project was in due diligence when the city had had the Ramada Inn under contract to purchase, which contract the City transferred to Shangri-La,” the mayor wrote in an email to BPR. “And the 1.5 million committed to Step Up to provide wraparound services for those that were supposed to be housed at this location, will not be paid by the City to Step Up.”
The former Ramada Inn has remained unoccupied since shelter residents were forced out nearly two years ago to make room for renovation promised by Shangri-La and Step Up.
According to city data, more than 570 people were unhoused in 2023.
“This project was intended to create housing for those transitioning out of homelessness and Shangri-La’s failure to provide it means our community will have [to] lean even more on other partners like Homeward Bound and ABCCM [Asheville Buncombe Community Christian Ministry] to provide it,” Mayor Manheimer said in an email.
Shangri-La and Step Up leaders convinced Asheville city officials to give up their purchase rights in late 2021. City Council members dropped their plans to convert the building into a low barrier shelter and forfeited $80,000 in due diligence funds.
City Council moved to allocate $500,000 in American Rescue Plan Act funding to Step Up for services for residents in the first year. Council also committed to an additional $1 million in subsequent years, though the source of that funding was not designated.
The Council resolution, which included a 50-year deed restriction requiring the property be used for affordable housing, passed by a 6-1 vote.
Councilwoman Antanette Mosley, the sole vote against the measure, questioned the decision to consider Shangri-La and Step Up without a typical RFP process.
