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Saturday, Aug 13, 2022

State Sparks a Hotelier Exit

Local governments have purchased at least eight hotels in the San Fernando Valley and Ventura County for conversion into permanent homeless shelters through the state’s Project Homekey initiative.Homekey, launched last June, allows cities and counties to apply for grants to buy available properties and create housing for vulnerable and elderly people experiencing homelessness. The buying agencies then select local nonprofits or other service providers to own and operate the hotels and offer case management to occupants.Gov. Gavin Newsom earmarked $600 million in federal coronavirus stimulus money to fund the program when it debuted. Another $100 million in matching funds came from the state government and philanthropic partners. The City and County of Los Angeles received around $270 million, and have used the cash to buy 18 and 10 properties, respectively.

According to City Administrative Office documents, the City of Los Angeles so far has closed acquisition agreements on five hotel and motel properties in the Valley since September.

They include the 51-room Panorama Motel at 8209 Sepulveda Blvd. in Van Nuys, which sold for $10 million; 75-room Howard Johnson at 7432 Reseda Blvd. in Reseda – currently a Project Roomkey site being leased by the city as a temporary shelter for at-risk homeless people – which sold for $16.5 million; 59-room Econo Motor Inn at 8647 Sepulveda Blvd. in North Hills, which sold for $11 million; 76-room Travelodge by Wyndham at 21603 Devonshire St. in Chatsworth, which sold for $16 million; and the 87-unit Good Nite Inn at 12835 Encinitas Ave. in Sylmar, which sold for $16 million.Separately, the Housing Authority of the City of Los Angeles purchased the 52-unit Super 8 at 7631 Topanga Canyon Blvd. in Canoga Park and the 70-room Best Western at 11135 W. Burbank Blvd. in North Hollywood for about $12 million and $21 million, respectively.Councilmember Bob Blumenfield, who saw the addition of about 125 units in his district through Homekey, praised the program at a ceremony announcing the purchase of two hotels.

“The only way we will be able to solve the homelessness emergency is by continuing to invest in diverse housing options with services,” said Blumenfield.All told, the city spent an average of $230,000 a unit on Homekey properties – significantly cheaper than the price of building new housing.

L.A. County’s buys have all been outside Los Angeles city limits in areas such as Long Beach. None are located in the Valley or adjacent territories.

In Ventura County, officials approved the purchase of the 70-room Vagabond Inn in Oxnard, owned by Vista Investments in El Segundo, for $15 million. Nonprofit Community Developer Partners will handle the necessary capital improvements and renovations, while nonprofit Mercy House will take ownership of the shelter.

As a direct result of Project Homekey, California was the only U.S. state to record an increase in hotel transactions in 2020, according to data from Atlas Hospitality Group.Pete Hillan, a representative from the California Hotel & Lodging Association in Sacramento, told the Business Journal Project Homekey offers an attractive exit option to hoteliers as the industry faces a long road to recovery.

“A number of hotels are just making a business decision where they could only go so far and this is a good time to sell,” he said. “Here we are almost a year into some sort of shutdown. That’s a long time for any business to go without the ability to operate fully.”Staffing costs have obviously been cut, Hillan said, but taxes, maintenance and vendor payments are still applying pressure on owners’ pocketbooks.He added a return to pre-pandemic revenues is still far away for hotels. He acknowledged there is pent-up demand for tourism, but maintained business travel, conventions and other events won’t recover in 2021.  “We’ll start to see tourism creep back in … but not at a sustainable level,” he said.Project Homekey is up for a cash refill – Newsom’s proposed state budget, revealed in January, includes $750 million to continue funding the program in 2021. State legislators will debate the proposed budget before it takes effect in July.

Project RoomkeyFollowing Newsom’s proposal to extend Project Homekey, city and county officials have called for a similar extension for Project Roomkey, Homekey’s predecessor, in which government agencies lease hotels to serve as temporary shelters for particularly vulnerable homeless elders.

Some media reports have categorized Project Roomkey as a relative disappointment, citing its failure to reach its goal of filling 15,000 rooms with people who would otherwise sleep on the street.

LA Family Housing Chief Executive Stephanie Klasky-Gamer argued that’s an unfair assessment of the program’s effectiveness. Her North Hollywood nonprofit has partnered with the city as the site manager for several Project Roomkey hotels and was selected to adopt four of the city’s Project Homekey buys – all in the San Fernando Valley – as permanent assets.

“If the measure of success is: Have we kept the COVID rate down for unsheltered, vulnerable adults in the City and County of Los Angeles? A thousand percent we have,” Klasky-Gamer said.

When it launched last April, Roomkey was billed as having a secondary function of providing a modicum of business for struggling hoteliers. But has it actually given a meaningful financial boost to businesses in one of the Southland’s hardest-hit industries? According to Midwood Development, which owns and operates the longstanding Sportsmen’s Lodge Hotel in Studio City, something is better than nothing. The hotel has offered about 150 rooms to homeless residents through Roomkey.In an email to the Business Journal, Midwood’s L.A. representative Ben Besley said the hotel’s contract with the city “helped to mitigate the effect of the hotel being closed and allowed us to get some of our employees back to work.”The Lodging Association’s Hillan said that while the Roomkey contracts were a better option for hotels than closing down altogether, the program “wasn’t a panacea that made everything OK in 2020.”


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