Sold on a Promise: The North Carolina supportive housing projects that were never built

“Sold on a Promise” is a special two-part investigative series jointly produced by BPR News, WFDD and CityView that explores how a California developer and its nonprofit partner promised and then later failed to house around 550 homeless people in North Carolina.

Read part one here.

On a cold December day in 2022, Asheville city officials, along with a California developer named Andy Meyers and a nonprofit CEO named Tod Lipka, picked up gold-painted shovels for a ceremonial groundbreaking at the Ramada Inn site.

The event marked what was supposed to be the initial phase of turning the former hotel into permanent supportive housing, a term for homeless housing that also provides social services.

Asheville political leaders praised the project to which they had pledged $1.5 million to support as they dug into the ground alongside Meyers, a former professional football player with broad shoulders and a charming grin. Meyers’ company, Shangri-La, had worked in partnership with Step Up on Second on similar housing projects in California. He assured the Asheville crowd that the partners would be quick and efficient.

But the timeline for construction continued to lag.

After the groundbreaking ceremony in Asheville, the project stalled and the developer parted ways with its original contractor, Asheville builder Beverly-Grant. Meyers said the delay stemmed from being forced to refinance the project after failing to reach an agreement on a contract.

“We could be under construction right now but we're just waiting to close the loan because, look, banks have exploded all over the country,” Meyers told BPR in August 2023.

The delays in Asheville didn’t stop Meyers and Lipka from continuing their crusade across the Tar Heel state to convince local leaders to invest in their plans. From the mountains to the coast, city and county leaders entertained proposals from the partners to create development projects aimed at housing the homeless.

By mid-2023, Step Up on Second had arranged deals with three cities — Asheville, Winston-Salem and Greensboro —totaling nearly $7 million in government funds.

 

Step Up on Second trudges east, despite California legal problem

Undeterred by the Asheville delay, Step Up on Second moved east, peddling its vision to the Fayetteville City Council in August 2023. Like the Asheville deal, Lipka presented a proposal to convert a former motel into 137 units of permanent supportive housing.

As Lipka spoke, council members read about the glittering potential of the new development, called Step Up on Eastern. A glossy brochure claimed the fully renovated Night Inn could reduce homelessness in Cumberland County by 28%. As they had done in other cities, the developer and the nonprofit leader estimated construction would take seven to eight months.

The brochure touted the successful examples of Step Up on Second’s collaborations with Shangri-La, including the Asheville project. “Before and after” shots of the Asheville project appeared to show progress, but a close-up on the “after” photo shows it was actually a rendering — a hopeful architectural drawing.

When asked about the flyer in May 2024, Lipka said, “I believe that presentation was made before any work was started on the project. It would not be presented as a finish project.”

Emails show Mangano continued to support Lipka’s efforts throughout the process.

In an April 4, 2023, email to Chris Cauley, Fayetteville’s director of economic and community development, Mangano wrote, “What we’re seeing in other communities is that the reality of creating 80-100 units of starter housing for homeless people is making an impact in those lives and in the quality of life for the community. As we indicated when we visited, we’re prepared to identify, acquire, and rehab. We have the private sector capital to do so."

The efforts worked.

At an Aug. 7 meeting, council members voted to set aside up to $5.4 million in American Rescue Plan Act funds for Step Up on Second’s promised 137-unit conversion.

 

Meanwhile in Asheville, the “after” image of the Ramada Inn was far from reality. Weeds grew over much of the site, leaving the space with a decaying aesthetic and a landscaper who claimed Shangri-La owed him more than $10,000.

The Winston-Salem plan appeared to be faltering as well. Despite inking the deal with the city in October 2022, Shangri-La had not closed on the property nearly a year later. But public officials remained optimistic, citing the alleged track record of the developer.

“I mean, what they do is a model that they have done all over the country,” Council member Jeff Macintosh said. “They know how to do it.”

Neighborhood Services Director Shantell McClam provided an update to council members in September 2023. Step Up on Second had identified a site, the InnKeeper on Peters Creek Parkway.

“Right now, they are in the final phases of the contracting for the purchase of this property,” McClam said. The 83-unit project “is expected to be completed in the next 9 to 12 months.”

But optimism faded as the Winston-Salem project sat untouched.

The same month, a Wake County official took the stage at the Clinton Global Initiative annual meeting in New York to unveil their partnership with Step Up on Second.

“By partnering with Step Up, we can expand our efforts even further and help our hardest-to-house residents find safe places to live," Wake County's Director of Affordable Housing and Community Revitalization Lorena McDowell said in a press release.

Wake County officials made a visit to California to see Step Up on Second’s work, solidifying their partnership, according to the release.

Wake County hailed the same promises of speed and efficiency other cities expected.

“Step Up projects these apartments will be completed in a third of the time and cost compared to traditional homeless housing development,” the release said.

Just a few months later, in December 2023, Shangri-La lost the Asheville property in foreclosure for failing to pay back a $6.3 million bridge loan.

It was the first in a set of financial dominos to fall.

 

 

In California, Step Up on Second and Shangri-La face $114 million lawsuit

As the North Carolina projects stalled, Shangri-La and Step Up on Second found themselves in serious legal jeopardy in California.

One of the nation’s largest banks, BMO Harris, sued the developer, alleging default on a $20 million loan for a project in California.

In early 2024, the state attorney general sued the partners for alleged fraud and breach of contract.

The lawsuit painted a very different picture than the image Step Up on Second and Shangri-La leaders had drawn for North Carolina officials, highlighting their successes on the West Coast.

The suit alleged that the partners received more than $114 million from the state’s Homekey Program to convert motel properties into shelters for the unhoused, but the pair had not delivered on contractual obligations.

A spokesperson for the California Department of Housing and Community Development said the partners “misrepresented multiple financial considerations and has yet to cure a number of breached contractual obligations to the state and the Homekey program.”

By the end of 2023, representatives from Shangri-La went silent and stopped responding to media questions about their lack of progress in North Carolina.

In early 2024, Step Up on Second CEO Lipka went back to Greensboro’s housing department with a new ask: $1.5 million. Lipka claimed it was necessary due to issues with the Regency Inn.

Emails between city staff obtained by WFDD showed growing frustration.

“No surprises there,” Assistant Director of Housing and Neighborhood Development Cynthia Blue wrote to Director Michelle Kennedy. “Could have told him that 9 months ago that he wasn’t looking closely enough at it… which is when he was SUPPOSED TO CLOSE THIS THING.”

Eventually Shangri-La would lose control of several of its properties in California. The company has also since filed suit against one of its own, accusing 29-year-old Shangri-La CFO Cody Holmes of $40 million in “bank fraud and check kiting,” The Real Deal reported.

 

 

City officials "very much regret this outcome"

Had Shangri-La and Step Up on Second officials delivered on what they conjured for local officials desperate for solutions, more than 550 North Carolinians might be living in their new homes. But in reality, none of the promised housing units came to fruition.

In January 2024, after more than two years of stalled progress, Asheville officials acknowledged the failure and officially pulled the plug on the project.

“This project was intended to create housing for those transitioning out of homelessness and Shangri-La’s failure to provide it means our community will have [to] lean even more on other partners like Homeward Bound and ABCCM [Asheville Buncombe Community Christian Ministry] to provide it,” Asheville Mayor Manheimer said in an email.

“The city, I think, very much regrets this outcome and is disappointed,” Nikki Reid, a City of Asheville staffer who helped organize the project, shared in a March 2024 meeting.

On the other side of the state, Fayetteville officials had reached a similar conclusion, halting plans to convert the Night Inn in late 2023.

“[Step Up] and their development partner Shangri-La have notified the City that the location originally planned was no longer feasible due to the cost of the site, willingness of the owner to sell, and availability of Housing Vouchers,” development director Cauley wrote.

“They told staff that they would continue exploring Fayetteville but had a variety of projects ongoing and did not have a new site identified.”

Cauley said the city is open to proposals for similar projects from other partners.

“Permanent Supportive Housing for chronically homeless individuals suffering from mental health and drug addiction is lacking across the country,” he wrote. “Fayetteville City Council was excited to be able to invest in an experienced nonprofit to fill these gaps in our community. That excitement will continue as staff look for capable and experienced developers to partner on affordable housing developments.”

Winston-Salem was the next domino to fall. City leaders pulled out of the deal in January 2024, citing Step Up’s failure to purchase a site and select a new development partner after severing ties with Shangri-La.

The initiative between Step Up on Second and Wake County, reported by RALtoday, petered out around the same time, according to county spokesperson Kathy Del Hoyo.

“We were never in a formal partnership with Step Up – we jointly explored opportunities for their model to be replicated in Wake County. Those discussions ended in the first quarter of this year,” Del Hoyo told BPR in a June email.

Despite the failed projects in other North Carolina municipalities, the delays in construction and the mounting legal challenges nationally, some Greensboro officials initially doubled down on their partnership with Step Up on Second.

But after hearing what happened in Asheville, one Greensboro council member wanted the city to stop the deal right away.

“Greensboro needs to pause this project immediately,” council member Zach Matheny wrote in an email to fellow members. “It appears the Regency Inn plan has been and continues to be a huge failure on the city for its purpose of housing the homeless. … It appears Step Up is not what it seems to be in reality.”

At a February council meeting, Lipka made a revised pitch: Expand the Regency Inn from 58 supportive housing units to 201 units in a mixed-use development. That would have pushed Step Up on Second’s timeline to open the converted hotel to 2027.

At first, some in Greensboro kept confidence. But council members began pushing back.

“It just seems like we've been sold on a promise. And it's not being delivered,” council member Sharon Hightower said. "And I'm just very concerned about this. It needs to wrap up quickly, one way or the other.”

Two months later, the city began distancing itself from Step Up on Second. In an email to Greensboro City Council in late April, Interim City Manager Chris Wilson wrote that he was uncomfortable “advancing a project with Step Up on Second under the requested terms.”

 

The company had been unable to come to an agreement with Partnership Homes, which owns the Regency Inn.

Wilson’s email revealed Step Up on Second had requested an additional $285,000 to start work, and declined the city’s request to add performance-based clawbacks to the deal.

“I believe a partner should give us such assurances and share in the investment of a site. This proposal leaves me without confidence that this can be achieved with Step Up on Second,” he wrote. “As a result, unless directed otherwise, I am asking our team to assess alternative options quickly so that we may move in a different direction.”

Regret? Or a new strategy?

Mangano, who had for years praised the work of Step Up on Second and Shangri-La, told BPR in May that he was “shocked” to learn about the developer’s financial problems.

He said Shangri-La was not forthright about its financial or legal troubles. Despite Step Up on Second being named in the California lawsuit, Lipka and Mangano both maintained that Shangri-La was at fault for the financial issues that derailed all the housing projects in North Carolina.

“There was an assurance from them that all was well and that everything was proceeding,” Mangano said. “They’re the ones who are supposed to have the expertise on the financial side. Step Up was supposed to have the expertise on the service side. And you know, my job was to kind of just do introductions for them.”

Lipka echoed Mangano, telling BPR he was “surprised and shocked at the failure of Shangri-La” in a May email.

The lawsuit alleges both Step Up on Second and Shangri La violated the terms of Homekey contracts by selling or financing the properties to other parties without the permission of the department, by not complying with the restrictions required on the properties and by failing to pay contractors who performed renovation work.

In June, the Los Angeles Times reported that Shangri-La’s attorneys said they gave $2.7 million in Homekey loans to Step Up “in exchange for Step Up’s stake in future profits from the Homekey projects.”

Representatives from Shangri-La have not responded to numerous requests for comment since October 2023.

Several city officials noted that although the projects did not move forward, no funds were spent.

“The 1.5 million committed to Step Up on Second to provide wraparound services for those that were supposed to be housed at this location, will not be paid by the City to Step Up on Second,” Manheimer wrote in an email to BPR.

But money allocation isn’t the only sunk cost.

In the eyes of State Treasurer Dale Folwell, even when money is not allocated, like in the case of the failed projects in NC, there is a “frictional cost” to local governments. The costs include “hope, staff time, increased cost of labor and material, higher interest rates, all those things,” he said.

 

 

Back to square one?

More than 30 months have passed since Lipka first promised Asheville officials that his team had the “special sauce” to address the seemingly impossible challenge of homelessness. Now, a different developer is under contract to purchase the property and convert it to permanent supportive housing.

Despite none of the work being completed, Mangano said he hasn’t “given up on this strategy” to create permanent supportive housing through public-private partnerships, nor with his partnership with Step Up on Second.

“What we realize now is that costs have gone up considerably. You can talk to any affordable housing developer,” he told BPR in May. “Private sector partners cannot do all the money for the purchase and all of the money for the rehab.”

Mangano said he is now pitching a new “hybrid model” in his efforts to scale a solution for homelessness, one that still includes private sector money, but also involves more funds from local municipalities.

He and Lipka are in “conversations” with officials in North Carolina about future projects, according to Mangano.

“There are conversations now going on with some of the cities specifically concerning the hybrid model, and frankly, they're still very interested,” Mangano said.