King City Days Inn Project Homekey
City of King has filed a lawsuit for breach of contract against Shangri-La, which was supposed to convert the former Days Inn motel into housing for homeless individuals. (Jon Allred/Staff)

KING CITY — City of King has filed a lawsuit for breach of contract against Shangri-La Industries Inc., the troubled property developer that was supposed to convert the former Days Inn motel into supportive housing for the city’s homeless population.

“The City is extremely frustrated with the problems Shangri-La has created,” said Mayor Mike LeBarre. “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.”

In November 2021, the City entered into a Memorandum of Understanding (MOU) with Shangri-La to acquire and develop the Days Inn at 1130 Broadway St. into 45 permanent living units for individuals experiencing or at risk of homelessness. The motel conversion project, part of California’s Homekey program, included a grant from the state’s Department of Housing and Community Development (HCD) for $12.4 million, announced in March 2022.

Despite the grant funding, the project experienced months of delays, and the property is now in foreclosure proceedings after the developer defaulted on loans it acquired without any required approvals. California Attorney General Rob Bonta filed a lawsuit, on behalf of HCD, last week against Shangri-La, naming the City of King as a defendant.

“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,” said City Manager Steve Adams.

According to Adams, Shangri-La came “highly recommended” due to its experience with similar projects; however, six other Homekey projects around California, including three in Salinas, are now facing similar situations.

King City officials are coordinating some of their response efforts with these other agencies.

“We are not giving up on this important effort and are responding swiftly and proactively,” Mayor LeBarre said. “In addition to the lawsuit, the City is working with a number of partner government and nonprofit agencies on strategies to access additional resources in an attempt to proceed with the project independent of Shangri-La.”

The City has initiated interim efforts to temporarily house homeless individuals who previously resided in the Salinas Riverbed area, which was determined to be an “unsafe and hazardous situation,” according to Adams.

At its Jan. 9 meeting, King 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 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,” Adams said.

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Ryan Cronk is the managing editor for King City Rustler and Salinas Valley Tribune, a unified publication of Greenfield News, Soledad Bee and Gonzales Tribune. He covers general news for South Monterey County and the surrounding communities.

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