Federal arrests tied to a senior housing project have pulled a loose thread that reveals a disturbing pattern: Los Angeles used pandemic-era homelessness funds to buy hotels at inflated prices, handing Wall Street and politically connected developers a windfall while leaving hundreds of units empty and taxpayers on the hook.
In 2022 the City of Los Angeles bought four Extended Stay America hotels from Blackstone for more than $180 million under Project Homekey, the state program meant to convert hotels into housing for the homeless. Instead of maximizing shelter and services, the purchases look like a quick exit for a private equity giant and a payday for insiders. The core problem is structural: a program designed for speed created incentives for secrecy and overpayment.
Project Homekey allowed local governments to declare purchases “emergency acquisitions,” sidestepping normal competitive bidding and public hearings. That shortcut was supposed to save time, but it also removed safeguards against inflated appraisals and self-dealing. HACLA, acting as broker and administrator on some deals, handled transactions internally and then billed the city for staffing and overhead, effectively charging taxpayers to process purchases the city itself made.
One clear comparison comes from a county deal that nearly repeated the same pattern. County officials negotiated to buy an Extended Stay America property in Torrance for $30 million, a price that prompted a city-commissioned independent appraisal. That appraisal found the true value was far lower, the deal collapsed, and those local leaders saved taxpayers millions by insisting on scrutiny rather than rubber-stamping an emergency purchase.
That Torrance outcome highlights how different governance produces different outcomes. Republican-led officials insisted on an appraisal, exposed an inflated price, and walked away. In Los Angeles, similar deals went through with far less transparency, leaving the public with expensive, half-empty properties and mounting questions about who profited and why.
The recent federal arrests in the senior housing case appear to be the first domino to fall. Investigators allege collusion among developers, consultants, and housing officials to inflate costs and route public funds through shell organizations. Those charges suggest the problem is not just bad judgment but criminal behavior tied into a system that allowed quick purchases without standard oversight.
Mayor Bass has publicly promised “zero tolerance for homeless funding fraud,” yet that vow rings hollow when the city itself built the framework that made fraud possible. The Extended Stay America sales were approved during Eric Garcetti’s administration, and Bass inherits both the properties and the operational mess. Promises matter less than reforms that close loopholes and restore accountability to how taxpayer dollars are spent.
Blackstone emerges as the clearest corporate winner in this sequence. The firm presented its 2021 acquisition of Extended Stay America as a long-term strategic play, but in Los Angeles that narrative masked a quick, taxpayer-subsidized liquidation. By selling aging assets to public agencies at elevated prices, Blackstone converted a private investment into an immediate profit while the city received expensive buildings not yet delivering permanent housing outcomes.
The human and fiscal costs are real. Los Angeles owns four hotels that cost more than $180 million and still sit largely unused as permanent housing, while over 1,000 Homekey-funded units statewide reportedly remain unoccupied. Every dollar tied up in overpriced purchases is a dollar not available for mental health treatment, addiction recovery, job training, or building new, permanent housing tailored to people’s needs.
Public institutions should be stewards of taxpayer money, not conduits for private gains. When Torrance leaders rejected the overpriced deal and faced criticism as “anti-homeless,” they were actually protecting the public from corruption and waste. That moment of independence exposed how easy it is for emergency rules to be abused and why strong oversight matters.
Investigators now have an opening to trace a pattern that could implicate multiple agencies and transactions across California. Scrutiny needs to sweep beyond a single criminal case and examine how emergency acquisition rules, appraisal practices, and administrative structures combined to enable a transfer of public wealth to private actors. If reformers want to fix homelessness, they should start by stopping the money leaks that enrich intermediaries instead of serving vulnerable people.
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