Sold on a Promise: How cities across NC set aside $12M for housing the homeless and got nothing

A “special sauce.” A “rare opportunity.” An endorsement from “very important people.”

Those words might sound like something out of late-night television infomercials or multilevel marketing grifts. But in the last three years, the lines helped convince city officials across North Carolina to fund projects involving a developer and a nonprofit now facing legal allegations of fraud by California state officials.

Across the state, representatives with California-based developer Shangri-La and its nonprofit partner, Step Up on Second, told municipal leaders how they would finance development projects aimed at housing the homeless.

Shangri-La, helmed by CEO Andy Meyers, first arrived in Asheville in 2021 and convinced its city council to partner with the developer on a public motel conversion project that was in danger of failing. Using the Asheville decision as a foothold, Meyers and Step Up on Second CEO Tod Lipka then persuaded local officials in Winston-Salem and Fayetteville to follow suit. In separate deals, Step Up also partnered with Greensboro and Wake County. Wake County leaders issued a press release boasting about their “groundbreaking partnership” with the nonprofit. 

The campaign worked. Asheville, Fayetteville, Winston-Salem, Wake County and Greensboro leaders approved the allocation of more than $12 million in government funds – primarily from federal pandemic recovery monies. Local leaders entrusted Shangri-La and Step Up on Second to remedy one of the most difficult challenges of local governance: housing.

But like the promises of late-night ads, the glittery attraction has faded.

None of the projects — which totaled 551 units across the state — have come to fruition and none of the funds were spent. The developer and the nonprofit face a $114 million lawsuit in California where state officials have sued over allegations that Step Up and Shangri-La failed to build affordable housing despite receiving taxpayer dollars. And in May, Shangri-La unsuccessfully filed for Chapter 11 bankruptcy protection.

Although the development partners never received any funds from North Carolina government coffers, the unfulfilled promises strung along city and county leaders. But worse, the situation leaves an estimated 3,400 unsheltered homeless people in North Carolina with few viable prospects for housing on the horizon.

 

Photo by April Laissle; graphic by Stephanie Rogers

 

“The good ol’ boy network”?

In Asheville, the problems surrounding the motel conversion project started well before Shangri-La and its nonprofit partner Step Up on Second became involved. Soon after committing to purchase a former Ramada Inn to turn it into a homeless shelter, city leaders realized they could not secure the necessary funds for the development.

With the plan close to being scrapped, a city staffer, Brian Huskey, reached out to an old friend: consultant Phillip Mangano, a former “homelessness czar” in the George W. Bush administration. In addition to running his own Boston-based nonprofit, the American Roundtable to Abolish Homelessness, Mangano has consulted for Step Up on Second, earning hundreds of thousands of dollars in nonprofit supplemental services.

 

 

In the fall of 2021, Huskey brought Mangano, along with Step Up on Second CEO Lipka and Shangri-La CEO Meyers, on a meet-and-greet trip to Asheville to connect with the local affordable housing movers and shakers.

Mangano made a guest appearance at the Asheville Regional Housing Consortium meeting, where he showered Shangri-La and Step Up on Second with praise, heralding them as a “faster and cheaper” solution to homelessness than government programs.

He called their work “seminal,” full of “efficiency” and an overall “rare opportunity” for Asheville’s decision-makers.

“They don’t need to come to Asheville,” Mangano said. “They could go to other communities who would be eager to receive literally tens of millions of dollars of acquisitions and resources.”

At the time, Asheville city officials had not publicly announced they would abandon the initial plans for an emergency shelter or transfer the right to buy the Ramada Inn to a private entity. But just weeks after Mangano’s visit, Asheville government leaders struck a hasty deal with Step Up on Second and Shangri-La.

Typically, publicly-funded housing projects of the scale proposed by the partners require extensive bidding processes. When cities plan to spend millions of taxpayer dollars, state law typically requires a public Request for Proposal, or RFP, to allow interested businesses to compete. But in each of the cities where Shangri-La and Step Up on Second worked, there was no RFP or formal bidding process for the housing projects.

Because city leaders were allocating federal pandemic recovery funds to support each project, they could enter into contracts or agreements without the vetting process of a competitive bid.

"These types of partnerships are not procurement activities and do not require solicitation through the use of an RFP or RFQ,” Fayetteville city spokesperson Loren Bymer told CityView. “The city of Fayetteville has an open process year-round for affordable housing developers to approach the city with potential development partnerships.”

About a year before the deal fell apart in Greensboro, leaders explained Step Up on Second had been selected without an RFP because “there are a very limited number of organizations that do this nationally.”

 

Photos by Laura Hackett; graphic by Stephanie Rogers

In Asheville, Shangri-La planned to use its private capital – of which Meyers claimed he had plenty – to purchase the Ramada Inn for $9.75 million and complete renovations for 113 residential units. Once construction wrapped, Step Up on Second would provide ongoing supportive services.

Step Up on Second CEO Lipka pledged to Asheville that he and Shangri-La would “radically change how quickly housing is developed.”

Not everyone bought it. At a December 2021 meeting, council member Antanette Mosley questioned why there was no formal bidding process.

“Essentially I was told that staff reached out and had heard good things about the organization,” Mosley said. “So immediately to me, in my experience, what I heard was ‘the good ol’ boy network taking place.’”

Asheville residents spoke out.

Photo by the City of Asheville, graphic by Stephanie Rogers

A local neighborhood association issued a public letter in December 2021, urging city officials to postpone plans “to allow for needed due diligence and planning.”

“It sounds too good to be true that Shangri-La just catapults across the country and solves all our problems,” Helen Hyatt, a community member, said.

Despite criticism from Mosley and residents, Asheville city leaders, in a contentious vote, agreed to allocate $1.5 million from the city’s American Rescue Plan Act (ARPA) monies to Step Up on Second.

Now, nearly three years later, the Ramada Inn sits empty.

From mountains to sea: developers move to the Piedmont

About a year after making the Asheville deal, Step Up on Second and Mangano approached Winston-Salem with an ambitious pitch: converting a motel into supportive housing for one-third of the city’s homeless population.

Winston-Salem officials heard high praise for Step Up on Second and Shangri-La.

“They have a track record. They have a good reputation for what they have done,” city staffer Marla Newman said. She told council members the project would happen within a year’s time.

She recounted Mangano’s high-level role in the Bush administration and emphasized Step Up on Second’s reputation, noting recognition by the Clinton Global Initiative, former President Bill Clinton and the Kobe & Vanessa Bryant Family Foundation.

“They have also been in partnership or in conversation with Greensboro, High Point and Asheville,” Newman told council members.

Photos by Amy Diaz; graphic by Stephanie Rogers

A week later, city leaders greenlit the project by allocating $2.25 million of Winston-Salem’s federal Home American Rescue Plan housing funding to Step Up on Second. Under the proposal, private investors would purchase and rehab an 80 to 100-room hotel in Winston-Salem. Once operational, the city would pay for ongoing supportive housing for the residents of the hotel.

Graphic by Stephanie Rogers

About 25 miles down the road, a Greensboro staff member made a similar pitch to city council members.

The city had already started work on a permanent supportive housing project of its own, loaning nonprofit developer Partnership Homes the money to purchase the Regency Inn. But the funding needed to complete the renovation was not secured.

The finished project would mean 58 housing units to alleviate homelessness in Greensboro. Step Up on Second – alongside developer Slate Property Group – told city leaders it could finish the work and finance it mostly via private investment.

Like in Asheville and in Winston-Salem, city council members were sold. Greensboro officials directed Partnership Homes to transfer the Regency Inn property, valued at about $3 million, to Step Up and Slate.

Tomorrow: How projects collapsed across North Carolina