Project Homekey lawsuit leaves Central Coast cities and unhoused people searching for answers

MONTEREY COUNTY, Calif. (KION-TV)- Two cities on the Central Coast had trusted a Project Homekey developer in their efforts to help people find housing.

The developer which is Shangri-la Industries Inc. has gone silent since being sued and accused of fraud by the California Department of Housing and Community and other cities including King City.

However, some projects in Salinas are still in limbo and neighbors around the motel said it is attracting more of the unhoused community.

People who live in the Fairview community in East Salinas said from the very start they were against two of those projects which include the Sanborn Inn and Salinas Inn.

In 2022, Salinas City Council informed the community that Salinas had been selected for the state programs and the agreements were said and done.

"It doesn't surprise me, let's just say that things are going the way they are right now," Juana Gonzalez who lives in Salinas said.

The lawsuit has people living near those hotels wondering what happened with the estimated $36 million granted and more importantly these motels.

The sites sit abandoned with chain linked fences around with unkept grass and a growing number of homeless around them.

"The homeless are drawn to that area and that's the path our children use to get to Los Padres Elementary School," Carina Powers who lives in the Fairview neighborhood said.

Neighbors who live in the area tell KION that they have been attacked and their homes invaded.

Grace Solorio who lives in the neighborhood is demanding answers.

"There were some thefts reported and police were not showing up on time," Solorio said.

Tod Lipka who is the President and CEO of Step Up Monterey County said that they were hoping to be part of the answer.

"We were so looking forward to being part of the solution in Salinas and Monterey County and creating much needed housing for people who are in the streets," Lipka said.

Lipka runs Step Up Inc. which partnered with developer Shangri-La to operate the home key sites in Salinas and King City.

Step Up is also named a defendant in the lawsuit and Lipka was responsible for all rehab work and financial aspects of the projects.

"Unfortunately what was devastating to all our parties is that when Shangra-La refinanced they did not put the affordability covenant on the loan on many of them," Lipka said. "Just does not make any sense because these are for low-income individuals."

Shangri-La Construction has been ordered to cure the properties by paying all liens recorded against the properties and declare the properties for affordable-use only for the next 55 years.

The California Department of Housing and Community did not grant KION an interview without the ongoing litigation. However, they sent KION a statement.

"The difficulties they find themselves in are of their own making. This is clearly spelled out in the complaint. HCD will continue to make every effort to ensure Homekey dollars go toward housing individuals experiencing homelessness, and not enriching developers.”

California Department of Housing and Community

As a result, everyone involved along with Monterey County leaders seem to be scrambling to help house people and keep them from living in places like the Salinas Riverbed.

At a recent Board of Supervisors meeting, KION learn that the lawsuit are affecting plans for county officials trying help the homeless through state dollars.

The state has stopped providing assistance in applying for grants.

Roxanne Wilson is the County of Monterey Director of Homeless Services said the state is unable to provide to further guidance on where to go from here.

"I am aware that both the legal teams of both the state and the city are in conversations with each other," Wilson said. "So everything is being done in full transparency so even in the application we did mention Homekey quite a bit.”

Contractors in the court documents claim they have not been paid by Shangri-la for the work completed.

A court date is set for March 1 where parties for multiple defendants including the cities of Salinas, King City and Chicago Title are expected to appear in Downtown Los Angeles.

Step Up tells KION there is a possibility that a new developer can be brought in and willing to purchase the properties.