More Than 1,200 City-Owned Homeless Housing Units Remain Vacant Two Years After $800 Million Buying Spree

What homeless problem?  California can not find the $24 billion it spent to end homelessness.  They State is financing the buying of hundreds of motels and hotels, to house the unhoused.  Yet, LA which has spent billions while the homeless numbers grow.  Yet they have 1200 units for the homeless, that are empty.

“It’s an odd location for the City of Los Angeles to have spent nearly $50 million to purchase a brand new, five story luxury apartment building for the homeless. The neighborhood around 1654 West Florence Avenue in South LA consists of empty, dilapidated storefronts and abandoned, crumbling apartments. The few local businesses consist of liquor stores, marijuana dispensaries, fast food franchises and auto body shops. The building itself is located less than half a mile from the liquor store where the Rodney King riots broke out in 1992. The boulevard never recovered. The area median income is 35% below the City as a whole. 

It was by far the highest sale price in the neighborhood’s history. The location and price are the first of many questions about the property.”

Someone made out like a bandit, while the taxpayers get the bill.  As for the homeless, their numbers grow

FEATURED

EXCLUSIVE: More Than 1,200 City-Owned Homeless Housing Units Remain Vacant Two Years After $800 Million Buying Spree

Chris LeGras, Jamie Paige, Westside, Current,  5/14/24  https://www.westsidecurrent.com/news/exclusive-more-than-1-200-city-owned-homeless-housing-units-remain-vacant-two-years-after/article_473f6a78-11e9-11ef-92b9-0b22ca012708.html

Many vacancies are in luxury buildings for which the City paid premium prices.

LOS ANGELES – It’s an odd location for the City of Los Angeles to have spent nearly $50 million to purchase a brand new, five story luxury apartment building for the homeless. The neighborhood around 1654 West Florence Avenue in South LA consists of empty, dilapidated storefronts and abandoned, crumbling apartments. The few local businesses consist of liquor stores, marijuana dispensaries, fast food franchises and auto body shops. The building itself is located less than half a mile from the liquor store where the Rodney King riots broke out in 1992. The boulevard never recovered. The area median income is 35% below the City as a whole. 

It was by far the highest sale price in the neighborhood’s history. The location and price are the first of many questions about the property.

The Housing Authority of the City of Los Angeles (HACLA) purchased the building in March 2022. More than two years later not a single homeless person has  moved in. It is completely vacant.

The purchase was made possible through Project Homekey, part of the 2020 federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. Los Angeles used Homekey funds to accelerate its purchase of existing properties to convert to homeless housing. According to analyses of publicly available documents, over the past four years HACLA spent more than $810 million to acquire approximately 2,750 apartments and motel and hotel rooms in 38 new and existing multifamily residential buildings. Assisted by three rounds of Project Homekey funding, HACLA’s goal was to get as many people housed as possible, in as short a period of time as possible. Funding also included money from Measure HHH and other sources. HACLA purchased the properties, while responsibility for filling them lies with the Los Angeles Housing Department.

An exclusive investigation by the Westside Current has uncovered more than 1,200 vacant City-owned high end apartments and motel and hotel rooms in two dozen Homekey buildings that are supposed to be providing interim or permanent supportive housing to homeless people in LA. At least five buildings have never been occupied. The properties range from low-end motels to luxury apartments HACLA acquired from for-profit developers, in many cases for record-breaking prices.

Our investigation included site visits to all 38 Homekey properties, most of which we visited more than once, as well as interviews with residents, neighbors, and service provider employees, public records research, discussions with subject matter experts, and emailed questions to responsible officials and agencies, including HACLA, the Housing Department, and Mayor Karen Bass’s Office.

HACLA often paid or offered record-setting prices for buildings that remain vacant

According to public records, a development company purchased a lot at 1654 West Florence Boulevard on June 16, 2017 for $337,000. It was vacant except for a small shack in which a marijuana dispensary operated. Experts we consulted said construction costs for similar buildings in similar neighborhoods average $250/sq.ft. One expert who has worked on similar projects applied a lower cost estimate of $150/sq.ft.

Even if the developer spent $400/sq.ft., which experts told us is the rough average for similar properties in higher end communities like Santa Monica, the company still would have cleared a comfortable profit, in taxpayer money. However, that higher cost is unlikely given the property’s location, de minimis land costs, absence of subterranean parking, and exemption from expensive, time-consuming environmental reviews. In comparison, the City of Santa Monica recently paid $430/sq.ft., absent land costs, for a brand new building in a desirable location on Pico Boulevard across the street from Santa Monica College and less than a mile and a half from the beach. The building includes parking.

There are other examples in HACLA’s Homekey portfolio. In late 2015, a real estate investment and development firm started work on a 101-unit luxury apartment building at 21121 Vanowen Street. On September 15, 2015 the company paid $720,000 for what was then an empty lot. The building is in a more sought after neighborhood than 1654 West Florence. Applying the higher end estimated construction costs of $400/sq.ft. the total cost of development for the 97,479 square foot building was just under $39 million. On October 17, 2022 HACLA purchased it for $55.2 million for a profit of $16.2 million, or 42%, for the firm.

One of the buildings HACLA purchased, 5050 West Pico Boulevard in mid-Wilshire, still has an active website advertising “luxury” apartments featuring “spacious, modern elegance” and “sweeping views of LA.” HACLA paid $36.5 million for the property, which at the time of sale had 18 active mechanics’ liens  totalling more than $2.1 million.

Our investigation further revealed three instances where the city paid or offered millions above asking prices. In at least two cases, the real estate broker representing the developer-sellers took to social media to boast that they were the most expensive buildings ever sold in their respective zip codes.

For example, on or about November 28, 2022 HACLA bought a new 34-unit building at 10150 Hillhaven Avenue in Sunland-Tujunga for $17.7 million. The broker who represented both HACLA and the developer-seller subsequently boasted that it was the most expensive building ever sold in the zip code per square foot, per unit, and overall.

On or about November 6, 2020 HACLA purchased a nine unit, 40-room “co-living” development called The Nest at 253 South Hoover Street just west of Downtown L.A. for $7.2 million. The same broker from the Hillhaven sale also represented HACLA in that sale, and subsequently boasted about another “record-breaking” deal.

The broker did not respond to emailed questions.

Overpaying seems to have been a feature, not a bug, of HACLA’s Homekey buys

One curious case is a 1970s vintage apartment at 14949 Roscoe Boulevard in Panorama City. According to Zillow, the property was listed for sale in October 2019 for $6.3 million, or $396/sq.ft. Less than two years later, on September 2, 2022 HACLA bought it for $10 million, or $633/sq.ft. The building remained vacant for a year while the agency spent additional money on upgrades and ADA compliance. The final cost to taxpayers may exceed $1,000/sq.ft. for a 50 year old building in a neighborhood whose median household income is 33% below the City of Los Angeles as a whole.

Another troubling example is a former elder care facility at 9120 Woodman Avenue in Arleta that had been vacant since at least March 2018. On December 15, 2020 HACLA purchased the building for $19.6 million, or $460/sq.ft. The broker said on social media that it was a “hefty price” and a “significant deal in the market.” Three and a half years later, the building remains vacant, fenced up, and under construction. The City is spending unknown additional sums – and months – to ready it for occupancy.

Then there is the case of the former EC Motel at 3501 S. Western Avenue in Exposition Park. In 2019 the decrepit 31-room motel was assessed at $3.6 million. In or around October 2020 HACLA purchased it for $5.3 million. When we visited the building on May 12, 2024 it was vacant. All the doors and windows were sealed up with plastic sheeting and bore signs saying “MICROBIAL HAZARD/DO NOT ENTER/AUTHORIZED PERSONNEL ONLY.” The building’s exterior facade is crumbling and covered in graffiti. People present on the property ignored attempts to speak with them.

On at least one occasion HACLA offered a higher bid than a building ultimately netted. On October 28, 2021 the agency’s board approved an offer of $14.4 million for a new 32-unit luxury apartment building at 10247 Variel Avenue in Chatsworth. For unknown reasons the sale did not close, and less than a year later the developer sold the property to a private buyer for $12.2 million, $2.4 million less than HACLA was prepared to offer.

More than half of all Homekey units remain empty 

As noted, Project Homekey was a response to the COVID pandemic. California received $3.75 billion in housing support from the federal government, which it used for three rounds of Homekey.

Round 1 spanned the deepest years of the pandemic, 2020-2021, and focused on purchasing empty motels and hotels to provide immediate interim housing. According to the Westside Current’s analysis, in Round 1 HACLA bought 984 rooms in 20 properties for $239 million. As of this writing, three of those buildings with a total of 159 one- and two-bed rooms are completely vacant. Another five are partially or nearly vacant, with an estimated 230 empty rooms. Finally, one former motel with 44 rooms serving as interim housing is in the process of being vacated so HACLA can upgrade it to permanent supportive housing. In response to emailed questions Housing Department Public Information Officer Sharon Sandow told the Current that Homekey requires interim housing to be upgraded.

That’s 433 empty rooms – 44% of the total Homekey Round 1 purchases, for which taxpayers spent some $105 million. More rooms will be vacated in coming months as HACLA continues converting rooms to permanent apartments as required. In a sense, HACLA is paying for these buildings twice, once to purchase them and a second time to upgrade them (we will detail that process in a subsequent installment of this investigative series).

The results in Homekey Round 2 were worse. In addition to eight more motels and hotels, HACLA purchased nine brand new upscale and luxury buildings that had become available due to the pandemic. According to our analysis the agency spent just over $523 million for 1,377 studio and one-, two- and three-bedroom apartments and one- and two-bed motel and hotel rooms in 18 buildings.

As of this writing, seven of those buildings with a total of 634 rooms are empty. Those buildings cost taxpayers $250 million. Four brand-new luxury buildings for which taxpayers spent $134 million have never welcomed a single resident. Three have been vacant for more than a year, and one has been vacant for more than two years. Another four buildings are partially or nearly vacant, with an estimated 160 rooms in total.

In an August 31, 2023 memo to the City Administrative Office’s Measure HHH Oversight Committee, the Housing Department estimated three of the four buildings would be occupied by January 1, 2024, and the fourth, 1654 West Florence Avenue, would be occupied by April 1, 2024. However, in a May 10 email to the Current, Sandow said that the Department now anticipates those buildings will be occupied between October 2024 and February 2025.

All told, an estimated 794 Homekey Round 2 units – 58% of the total – are vacant more than two years after HACLA bought them. This brings the estimated total number of vacant Homekey apartments and rooms to 1,227.

Sandow did not respond to two direct email questions asking if the Department’s vacancy numbers match these estimates.

Ironically, the process of converting buildings to permanent supportive housing often requires converting otherwise available units to other purposes. For example, in September 2022 the City purchased a 133-room Extended Stay hotel at 6531 South Sepulveda Boulevard across the street from the Howard Hughes Center for $52.5 million. The City is in the process of removing interim housing residents and spending millions more to upgrade the buildings. The upgrades include converting 13 rooms into “either … program space (supportive service staff offices, property management staff offices, service provision areas, and a community room for activities); combined to create two two-bedroom managers’ units; or used to create space for trash rooms, trash chutes, a laundry room, maintenance space, and a restroom.”

According to the August 2023 memo, HACLA is spending more than $1.3 million in relocation services. However, on the afternoon of April 28 we visited the property and spoke with a resident. She has not been offered a new room in a different building. “I have no idea where I’m going,” she said. There are only about ten residents left. Our discussion was interrupted when an employee of the service provider managing the property intervened and demanded we leave the “private property.” The resident, looking shaken, returned inside.

In total, HACLA has allocated an additional $10.9 million to relocate interim residents in four Homekey motels and hotels.

Even when the City has purchased brand-new buildings, it is spending additional funds converting units. On March 27, 2023 HACLA purchased a new 27 unit luxury apartment building at 916 North Alvarado Street in Echo Park for $11.2 million. Fourteen months later the building has never been occupied and the City is in the process of converting three units into “a laundry room, case management office, and break room for staff.”

The Westside Current’s investigation echoes concerns raised in previous reporting that much homeless spending is being wasted. Coupled with stories regarding flaws in the annual homeless count, ongoing mismanagement and lack of oversight within the Los Angeles City Homeless Services Authority (LAHSA), and ongoing concerns about the role played by nonprofits, our investigation adds to the chorus of questions about the efficacy and perhaps even the basic logic of the “housing first” homeless policy.

In this first installment of our investigative series, we examined the financial management of Los Angeles’s Project Homekey, which aims to convert buildings into housing for the homeless. 

Part 2 will delve into the specific project costs and the key stakeholders involved. Part 3 will address a major issue: a key player in the program has filed for bankruptcy, leaving many housing projects in jeopardy. The main player in this entity is also accused of misusing millions meant for housing on personal luxuries, such as luxury cars and gifts.