For the second time in five months, the owner of a Redlands motel converted to house the city’s homeless community has defaulted on its loan, and now foreclosure looms.
According to a default notice dated Sept. 11, 1675 Industrial Park, LP, the ownership entity of the former Good Nite Inn at 1675 Industrial Park Ave., owes Arixa Institutional Lending Partners more than $332,000. And that debt will continue to increase until paid in full.
“If your property is in foreclosure because you are behind in your payments, it may be sold without any court action,” read the notice, which noted that the owner also must pay insurance, taxes and other costs associated with the property.
Shangri-La connection
1675 Industrial Park, LP is housed in the offices of the Los Angeles-based Shangri-La Construction, whose parent company, Shangri-La Industries, received $30 million in Project Roomkey funding in 2022 for the motel conversion project.
The state funds were to cover the purchase of the property, upgrades and ongoing operations and services to the homeless, which are being provided by the nonprofit homeless advocacy organization Step Up in Redlands. The motel, which houses about 100 people, opened to homeless residents in January.
Under the city’s contract with Shangri-La and Step Up, the city is paying Shangri-La $3.5 million over seven years — $515,000 a year — to provide housing to the homeless at the renovated motel.
Asked if the default situation has raised any concerns with the city, Redlands spokesman Carl Baker would only say that city staff are in regular contact with Shangri-La. “We understand that Shangri-La has been working with the lender to refinance the loan and address all outstanding issues,” he said.
Shangri-La has 90 days from the date of the notice to clear its debt to Arixa before the lender can put the property up for sale.
Cody Holmes, chief financial officer for Shangri-La Industries, said in a telephone interview Friday, Oct. 13, that he expects the issue to be resolved within the next few days.
“We’re actively working with Arixa right now to get that cleaned up, and we’re in the process of refinancing the property, which would remove them (Arixa) as the lien holder,” Holmes said.
First default
In May, 1675 Industrial Park LP fell into default for failing to pay Arixa nearly $277,000. However, after Shangri-La was contacted by the Southern California News Group about the default notice, the company quickly moved to resolve the issue.
Later that day, Shangri-La and Arixa issued a joint statement stating the borrower was “current and all disputes between borrower and Arixa” were resolved.
Project delays
Established in March 2020 in response to the COVID-19 pandemic, the state’s Project Roomkey program provides funds to cities and counties to provide shelter to the homeless, including the conversion of hotels and motels into transitional housing facilities.
Since then, Shangri-La Industries and the Santa Monica-based Step Up have partnered to convert motels in cities across the state — in San Bernardino, Los Angeles, Ventura and Monterey counties — into transitional housing under the state program.
But since the partnership commenced and Shangri-La began securing state funding for the projects, many of them have been delayed by lengthy environmental reviews and permitting processes, Holmes said.
That, combined with disputes Shangri-La Industries has had with its contractor, Ontario-based Northstar Development and Construction, and Arixa, its lender, there has been a delay in payment to Northstar’s subcontractors, forcing them to file mechanics liens at county recorder offices.
In San Bernardino County alone, more than a dozen contractors, subcontratcors and material suppliers on the Redlands project filed liens totaling $2 million from March 7 through May 3. At least three lawsuits were subsequently filed in San Bernardino Superior Court alleging breach of contract.
Another motel conversion project by the Shangri-La/Step Up partnership, at the Ramada Inn in Asheville, North Carolina, also has been plagued by delays, reportedly due to unexpected structural deficiencies, financing issues and a conflict with a contractor.
Tod Lipka, president and CEO of Step Up, told Asheville city councilmembers that creating such housing is typically a five-year process.
Lipka did not respond to telephone calls seeking comment.
Lawsuits
On July 12, Riverside-based Safeway Electric filed a lawsuit in San Bernardino Superior Court against 1675 Industrial Park LP. and Northstar alleging breach of contract for failing to pay them.
PDG Wallcoverings in Mission Viejo filed a lawsuit June 29 claiming it was owed more than $178,000. The lawsuit requested that the amount owed be ordered as a lien against the property, and that the property be ordered sold by the San Bernardino County sheriff.
Carpet USA sued Shangri-La Construction, LP. and 1675 Industrial Park LP on June 15, also due to lack of payment.
In each case, neither the plaintiffs nor their attorneys would comment.
At least two lawsuits have been filed in Los Angeles County, and at least one company in Monterey County is poised to sue as well.
Making subcontractors whole
Holmes said the lawsuits were standard procedure to ensure the demands made in the mechanics liens remain valid and current.
He said Shangri-La has resolved its dispute with Northstar and has since been working with its contractor on negotiating settlement agreements with all the subcontractors. “Our legal team is working directly with them,” Holmes said.
In May, Shangri-La and Northstar issued a joint statement saying Step Up in Redlands has “provided 122 people with a permanent and affordable home in record time.”
