City of King Files a Lawsuit Against Homekey Project Developer

The City of King on Tuesday, January 16 filed a lawsuit for breach of contract against Shangri-La Industries, Inc. In November 2021, the City entered into a Memorandum of Understanding (MOU) with Shangri-La to acquire and develop the former Days inn Hotel at 1130 Broadway Street into a permanent supportive housing project for individuals experiencing or at risk of homelessness. The project is part of the State Homekey program, which involved a grant from the State Department of Housing and Community Development (HCD) for approximately $12.4 million. Despite the grant funding, the project experienced months of delays, and the property is now in foreclosure proceedings after the developer defaulted on loans they acquired without any required approvals.

According to City Manager Steve Adams, "Not only has their mismanagement, misconduct and fraudulent actions put this important project and shelter for many people in need at risk, it has also placed the City and operating partner in a position of having to defend ourselves against legal actions by the State for issues involving the grant requirements even though no funding was paid to the City and the City has no ownership interest in the property under the grant program." Shangri-La came highly recommended due to their experience with similar projects. However, 6 other projects in other jurisdictions around California are now facing similar situations. King City officials have reached out and are coordinating some of its response efforts with these other agencies.

Mayor LeBarre stated, "The City is extremely frustrated with the problems Shangri-La has created. King City has been working hard to serve as a model for small communities by demonstrating how to effectively address homelessness, which is a major issue being faced by jurisdictions throughout California. However, we are not giving up on this important effort and are responding swiftly and proactively. In addition to the lawsuit, the City is working with a number of partner government and non-profit agencies on strategies to access additional resources in an attempt to proceed with the project independent of Shangri-La."

The City has also acted quickly to maintain interim efforts under way to temporarily house homeless individuals who had previously resided in the Salinas Riverbed area, which was determined to be an unsafe and hazardous situation. At their January 9th meeting, the King City City Council approved an MOU with multiple agencies for revenues to fund extension of a temporary shelter program while efforts to resolve issues with the permanent project move forward. The funding assistance enabled the City Council to approve the extension of a lease for 18 rooms at the Monarch Inn to make the temporary program possible.

“The City is grateful to all our partner agencies for their assistance; we are very fortunate in Monterey County to have so many partners dedicated to helping those in need in a collaborative and effective manner," concluded City Manager Adams.

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