First the state accused Shangri-La Industries of fraud. Now the developer of homeless housing has accused its former beancounter of living high on the hog after stealing from the firm.

The Downtown Los Angeles-based developer of motel-to-home conversions has sued Cody Holmes, its former chief financial officer, for allegedly embezzling millions of dollars, the San Bernardino Sun reported.

Shangri-La accused the 29-year-old Holmes of bank fraud and check kiting from 2022 through last year from company lenders, banks and brokers, according to the complaint.

The firm alleges its former CFO moved vast sums of company cash and property to bank accounts and shell companies he set up and controlled, and to his suspected ex-girlfriend, Madeline Witt, 28, also a defendant in the lawsuit.

The suit, filed last month in Los Angeles Superior Court, seeks more than $40 million in damages.

While the developer defaulted on loans tied to its Project Homekey sites, Holmes and his girlfriend hit the L.A. high life, according to the complaint.

To Witt: Covering $46,000 a month in rent at a leased home in Beverly Hills. Regular travel on private jets. Leased Bentley Bentayga and Ferrari Portofino cars. And $12,000 to cover a student loan payment, according to the lawsuit.

Holmes also rewarded himself and his girlfriend with two Birken handbags worth nearly $128,000. Chanel and Louis Vuitton handbags valued at more than $14,000. A $127,000 Riviera diamond necklace. A $35,000 Audemars Piguet diamond watch. And 20 VIP passes for last year’s Coachella Music and Arts Festival, worth more than $53,000, according to the suit.

Holmes and Witt did not respond to multiple emails, telephone calls and text messages requesting comment.

Shangri-La fired Holmes in January following an internal investigation, according to court records. He started working at Shangri-La as an intern in 2014 while an undergraduate at USC, earned a master’s degree in finance while working at the company as director of finance, then in 2019 rose to CFO.

Attorneys representing Shangri-La, its affiliate businesses and CEO Andrew Meyers Abdul Wahab, who professionally goes by “Meyers,” filed the suit seeking a temporary restraining order to prevent Holmes from withdrawing money from nine bank accounts he controls.

After he was fired, Holmes continued to make hefty purchases, including leasing a new Porsche Taycar and renting a luxury home in the Hollywood Hills, according to Shangri-La attorney Brian Sun.

A judge denied Sun’s request on March 7, but the lawyer said he plans to push the issue by filing another motion. In a telephone interview, Sun said Holmes is “dissipating assets as we speak. He’s selling off assets.”

Circumstances at Shangri-La are no less harmonious.

Since 2020, the state Department of Housing and Community Development has provided Shangri-La Industries more than $121 million in Homekey funds to convert motels up and down the state into permanent supportive housing for the homeless.

Then the developer defaulted on loans tied to seven properties, and owed about $41 million in delinquent debt as of Dec. 1, The Real Deal reported. In separate court cases, lenders had sued Shangri-La and asked the court for receiverships, an alternative to bankruptcy. 

In January, Shangri-La Industries lost control of six out of seven former motels for Project Homekey sites to court-appointed receivers in Salinas, King City, San Bernardino and Redlands.

After TRD reported on the defaults, the state opened an investigation into Shangri-La and found the firm had violated its operating agreements tied to six of the properties. In January, state Attorney General Rob Bonta filed a lawsuit against the firm, claiming the developer breached state contracts and alleging fraud. 

Shangri-La still manages and owns a site in Thousand Oaks contracted under Project Homekey, though the firm faces at least three lawsuits from contractors over that property, claiming unpaid mechanic’s liens. 

The late Hollywood producer Steve Bing founded Shangri-La. Meyers, the CEO, has previously blamed the state for the company’s defaults, arguing that because officials failed to sign regulatory agreements for the deals, lenders triggered defaults.

— Dana Bartholomew

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Shangri-La Industries has lost control of six out of seven of its Project Homekey sites to court-appointed receivers, ending its goal of becoming a major operator of homeless housing sites across California. 

State courts have appointed receivers on the six former motels, located in Salinas, King City, San Bernardino and Redlands, according to court records. 

The receivers were appointed after Shangri-La defaulted on loans tied to the seven properties and owed about $41 million in delinquent debt as of Dec. 1, TRD reported. In separate court cases, lenders had sued Shangri-La and asked the court for receiverships, an alternative to bankruptcy. 

Los Angeles-based Shangri-La had obtained $121 million in state Homekey grants from 2020 through 2022, according to state data, about 3 percent of the total funds handed out by the state program to date.

After TRD reported on the defaults, the state opened an investigation into Shangri-La and found the firm had violated its operating agreements tied to six of the properties.  California Attorney General Rob Bonta filed a lawsuit against the firm last month, claiming the developer breached state contracts and alleging fraud. 

Receivers have the power to lease up properties, investigate financials, collect rents and put the properties up for sale. 

However, the receivers cannot remove the low-income restrictions on the projects, and the lenders could keep the affordable covenants in place, adhering to the state contracts. 

Any sale of the properties has to be reported to the California Attorney General, according to court documents. 

Edwin Leslie-Kubat at LK Asset Advisors has been named as a receiver on five properties — 1030 Fairview Avenue, 545 Work Street and 180 South Sanborn Road in Salinas, 1130 Broadway Street in King City and 450 North G Street in San Bernardino. 

At 1675 Industrial Park, Mitch Vanneman at Hilco Global is the court-appointed receiver. 

Shangri-La still manages and owns a site in Thousand Oaks contracted under Project Homekey, though the firm faces at least three lawsuits from contractors over that property, claiming unpaid mechanic’s liens. 

Andy Meyers, the CEO of Shangri-La, which was founded by the late Hollywood producer Steve Bing, has previously laid blame on the state for the defaults, arguing that because officials failed to sign regulatory agreements for the deals, lenders triggered defaults.

The State of California has hit Shangri-La Industries with a sweeping lawsuit, after the developer defaulted on loans tied to seven motels slated for conversion into housing for the homeless under a state program. 

State Attorney General Rob Bonta filed the suit in L.A. Superior Court on Monday afternoon, claiming the developer breached contracts to convert motels into housing for the homelessness and alleging Shangri-La committed fraud, according to the complaint.  

“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 representative for the California Department of Housing and Community Development said in a statement.

Shangri-La defaulted on the loans tied to seven properties over the last six months, and owed about $41 million under the delinquent debt, as of Dec. 1, TRD reported. 

After TRD’s report, the state opened an investigation into Shangri-La Industries and found Shangri-La had violated its operating agreements tied to six Homekey properties — two in Salinas and others in San Bernardino, Redlands, King City and Thousand Oaks.

All seven are now “at risk of imminent foreclosure,” the complaint states. 

Shangri-La, run by Andy Meyers, scored at least $121 million in grants from the Homekey program from 2020 through 2022, according to state data, about 3 percent of the total funds handed out by the state to date. 

In its 321-page complaint, which also named Thousand Oaks, Salinas, Redlands, San Bernardino and King City, along with Shangri-La’s lenders as defendants, the state attorney general alleged the developer “failed to notify” HCD that it defaulted on the loans. 

The development firm was founded by the late Hollywood producer Steve Bing, who had inherited a real estate fortune from his grandfather, New York developer Leo Bing.

Meyers has previously laid blame on the state for the defaults, arguing that officials failed to sign regulatory agreements for the deals, which were required by lenders. 

Without signed regulatory agreements, Shangri-La has had to pay property taxes and for “multiple refinancings,” Meyers said in a phone interview last month, adding that HCD had not responded to his requests to work out issues. 

The attorney general has asked the court to order that the regulatory agreements with the state take priority over any other lender agreement, which would prevent a lender from foreclosing the assets.

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The California Housing and Community Development Agency has found a number of violations involving Shangri-La Industries’ Project Homekey developments, after the firm defaulted on seven loans tied to conversions across the state, The Real Deal has learned. 

“We are aware of violations by Shangri-La Industries with respect to six of the seven HomeKey properties for which it is the developer,” a representative for HCD said in a statement, adding the agency is “actively investigating this matter.”

HCD is also “coordinating” with the office of California Attorney General Rob Bonta, according to the spokesperson, and is in contact with the cities where these projects are located. 

The forward movement in the investigation comes after TRD reported Shangri-La Industries, based in Downtown L.A., owes about $41.3 million under delinquent loans tied to all of its Project Homekey sites.

Shangri-La scored at least $121 million in grants from the State of California from 2020 through 2022, all dedicated to converting motels into housing for the homeless under the state program Project Homekey, according to state data. That represents about 3 percent of the total handed out by the state so far. 

The firm, founded by the late Hollywood producer Steve Bing and run by Andy Meyers, has not responded to requests for comment. Its nonprofit partner on the sites, Step Up, also has not responded to comment requests. 

HCD found violations tied to six properties — two in Salinas and others in San Bernardino, Redlands, King City and Thousand Oaks. In total, these projects received $114.1 million in state grants. 

The properties were slated to be converted into interim or permanent housing for those who have experienced homelessness. 

However, HCD has found that Shangri-La has not converted the projects in time on these six properties, constituting a violation of the Project Homekey contract. 

On four, HCD also noted notices of default and mechanic’s liens — both of which constitute violations of Project Homekey covenants. 

At the site in Thousand Oaks — the Quality Inn & Suites at 12 Conejo Boulevard — Shangri-La had scored $26.8 million from the state to convert the motel into 77 units of permanent housing, slated to be the first of its kind in the Ventura County city. 

Shangri-La bought the motel for $18.9 million, using a $10 million loan from Calabasas-based bridge lender Private Mortgage Fund and another $1.83 million junior loan from RTI Properties, loan documents show. 

Assuming it used some of the state funds for the purchase, Shangri-La still had roughly $16 million for the conversion. 

In June, Shangri-La defaulted on the loan from RTI Properties, owing $115,000. It managed to cure the default for a few months, but was in default again by the end of September, according to notices of default filed with L.A. County. 

A month later, Shangri-La was in default on the loan from Private Mortgage Fund, owing $10.3 million, and facing a number of mechanic’s liens. 

Under state rules, a foreclosure for the property can be scheduled for Jan. 3.

After Los Angeles-based Shangri-La Industries defaulted on loans tied to seven Project Homekey developments across the state, one of the lenders called its lawyers. 

In August, contractor Johnson Electronics sued Shangri-La, asking the court to foreclose on a mechanic’s lien tied to 1030 Fairview Avenue in Salinas, a motel slated for conversion into housing for the homeless, according to a court complaint. 

But after Shangri-La Industries defaulted on a loan tied to the same project in November, one of its lenders, a successor to original lender Sunday Capital, filed a cross-complaint, asking the court to appoint a receiver on the development. 

Shangri-La has defaulted on loans tied to seven hotels slated for Project Homekey conversions over the last six months, according to property records and county notices of default. All seven received state grants — worth about $121 million — to help support the conversions. 

California’s Department of Housing & Community Development is “actively investigating apparent violations” by Shangri-La, according to an agency spokesperson, who declined to comment further.

Shangri-La Industries’ attorneys did not respond to a request for comment. 

Receiver request

If the court approves the lender’s application for a receiver on Friday, Shangri-La will lose financial and operational control of the Salinas project. A receiver has the power to sell the property, help finish construction and distribute funds to lenders and other creditors. 

That leaves the status of the project — meant to house at least 100 people — and its future ownership up in the air. 

The lender, a Delaware-registered LLC called 1030 Fairview Loan, claimed Shangri-La failed to maintain insurance, allowed mechanic’s liens to be recorded against the property and failed to complete construction by May 13, according to the cross-complaint.

These issues are considered “serious and material defaults that justify the immediate appointment of a receiver,” the LLC argued. The failure to maintain insurance is “highly indicative that the borrower is insolvent and, therefore, unable to manage the property,” the lender said in its court filing.

The LLC took over the loan from Sunday Capital, a private lender, which had handed Shangri-La an original $5.5 million loan on the development in 2022. It’s unclear who controls the LLC. 

Bank litigation

It’s not the first time Shangri-La has been sued by a lender over a Project Homekey-related default. 

BMO Harris Bank, one of the 10 largest banks in the U.S., sued Shangri-La and its CEO Andy Meyers in June, claiming the developer commingled funds and failed to provide “true and accurate information” on its bank accounts and inventory, according to a court complaint. 

In 2021, BMO gave Shangri-La a line of credit for $20 million, according to property records and the complaint. Two Project Homekey motels in Salinas — including the Fairview Avenue site — were eventually put up as collateral for the credit line, records show. 

By the end of August this year, Shangri-La had defaulted on BMO’s loan, owing more than the full $20 million. 

There were at least four reasons for the default, according to BMO’s complaint, including failing to provide BMO with true and accurate information about bank accounts and allowing $2.7 million in federal tax liens to be filed against the properties. 

BMO’s case was dismissed last month, according to court filings. No settlement terms were detailed. 

The Delaware LLC, the lender on the Salinas project, said without a receiver, its interest in the collateral “will be lost and materially prejudiced.”

Shangri-La Industries was started by Steve Bing, the heir of a New York City real estate fortune who moved into film financing. His Shangri-La Entertainment produced nearly 20 films. Bing died by suicide in 2020.

UPDATED, Dec. 1, 2023, 9:40 p.m.: In 2020, the State of California gave Shangri-La Industries, a developer based in Downtown L.A., about $7 million to convert a Good Nite Inn motel into 100 units of housing for those struggling with homelessness. The grant was one of the first handed out under the state’s conversion effort, named Project Homekey. 

It wasn’t the only cash Shangri-La Industries scored for the project in Redlands. It spent $12 million to buy the motel, using a $5.8 million loan from TerraCotta Credit REIT, records show. 

The debt continued to pile up. In 2021, Shangri-La also scored a $20 million credit line from BMO Harris Bank tied to the Good Nite Inn and another project in Salinas. The firm also scored loans from Lone Oak Fund, Forbix Capital and Sunday Capital in 2022, all tied to the Good Nite Inn at 1675 Industrial Park Avenue. 

By the end of August this year, Shangri-La had defaulted on the loan from BMO Harris Bank, owing almost $19 million. The firm had scored two different forbearance agreements in an effort to hedge against rising rates, but could not avoid default. 

Shangri-La scored at least $121 million from the State of California from 2020 through 2022, all dedicated to converting motels into housing for the homeless under Project Homekey, according to a TRD analysis of state data. 

But the funds have not proved enough to keep Shangri-La afloat on these projects. 

The company has defaulted on loans tied to seven hotels slated for Project Homekey conversions over the last six months, according to property records and county notices of default. That’s all of the firm’s hotel projects that received state grants. 

Shangri-La owes about $41.3 million under the delinquent loans — an amount that is set to keep accruing until the debt becomes current.

In addition to the Redlands site, the properties are located in Salinas, San Bernardino, King City and Thousand Oaks. 

The firm’s CEO Andy Meyers did not respond to a request for comment.

With the defaults, Shangri-La could lose all seven hotels. The fact the hotels are tied to Project Homekey makes it more complicated — lenders on the debt could foreclose and sell the properties to a party that may not want to keep the properties as affordable. 

“We are aware of these troubling reports regarding Shangri-La Industries,” a spokesperson for California’s Department of Housing and Community Development said in a statement, adding the agency is conducting a “focused investigation into this matter.”

For each Project Homekey property, cities essentially hire a developer to acquire, renovate and operate the sites. The developers are paid with city tax dollars over a number of years. 

Rich beginnings

Shangri-La may have its toe in affordable housing now, but it has roots in a family fortune. 

The firm was born out of the wealth of Leo Bing, the founder of New York City-based development firm Bing & Bing, which was known for building apartments for the rich. 

“Bing & Bing buildings still pack a wallop in the world of Manhattan real estate, oozing cachet,” The New York Times wrote in 2006. 

Bing passed on his real estate fortune to Steve Bing, who became a Hollywood producer and film financier. He founded Shangri-La Entertainment, and eventually, Shangri-La Construction and Shangri-La Industries. Bing, best known for producing the holiday movie “The Polar Express,” died by suicide in 2020. 

Meyers was tapped in 2000 as Shangri-La’s CEO, two years after graduating from UCLA, according to his LinkedIn profile. One of Shangri-La’s first projects was an airplane hangar at Burbank’s Bob Hope Airport. 

Another was the redevelopment of the Commercial Exchange Building at 8th and Olive Street in Downtown L.A. — the firm converted the building into the 226-key Freehand Hotel. 

Shangri-La’s construction arm has worked on a number of high-end real estate projects, including the Mr. C Beverly Hills hotel and condo project, which sold in 2021 for $80 million.

But by 2020, the firm had its sights set on Project Homekey to take advantage of Gov. Gavin Newsom’s initiative to convert motels into homeless housing. 

Homekey costs

Last year, Shangri-La scored $26.8 million from the state to convert the Quality Inn & Suites in Thousand Oaks into 77 units of permanent housing, the first of its kind in the Ventura County city. 

About 83 percent of the funds were designated as “capital” — costs associated with acquisition or rehabilitation. The rest was slated for operations. 

HCD rules do not dictate exactly what the funds can be used for, but states “eligible costs must be project related and the project must directly support the target population.” 

Shangri-La bought the motel at 12 Conejo Boulevard for $18.9 million, using a $10 million loan from Calabasas-based bridge lender Private Mortgage Fund and another $1.83 million junior loan from RTI Properties, loan documents show. 

Assuming it used some of the state funds for the purchase, Shangri-La still had roughly $16 million for the conversion. 

In June, Shangri-La defaulted on the loan from RTI Properties, owing $115,000. It managed to cure the default for a few months, but was in default again by the end of September, according to notices of default filed with L.A. County. 

A month later, Shangri-La was in default on the loan from Private Mortgage Fund, owing $10.3 million, and facing a number of mechanic’s liens. 

Under state rules, a foreclosure for the property could be scheduled for Jan. 3.

Construction of the project is slated to be finished by the end of this year, Meyers told the Thousand Oaks Acorn in August. It was originally set to be finished by the end of 2022. 

To buy the former Good Nite Inn in Redlands, Shangri-La had scored a $12 million loan from Arixa Capital, a private lender based in Westwood, in June 2022. It also had a $30 million grant from the state’s Project Homekey, its largest grant to date. 

By May, the firm was in default on the loan. As with the Thousand Oaks property, it managed to cure the default temporarily. 

As of Sept. 11, Shangri-La owed $332,000 under the loan. 

“We understand that Shangri-La has been working with the lender to refinance the loan and address all outstanding issues,” a spokesperson for the City of Redlands told the Redlands Daily Facts in October. 

The project is not yet finished, according to the website for Step Up America, the nonprofit operating partner of Shangri-La on a number of Project Homekey properties. 

“Stay tuned for details,” the website reads.