The failure of one of Skid Row’s largest homeless housing providers represents a dire warning for the viability of supportive housing in Los Angeles, according to a new report on the organization’s demise.
Released Wednesday, Redesign Required: Lessons for Permanent Supportive Housing from Skid Row Housing Trust Buildings, concludes that low and inconsistent rental subsidies and other structural problems in L.A.’s homeless housing systems played a key role in the trust’s 2023 collapse.
Without major changes, other supportive housing providers remain at risk, imperiling housing for thousands of the region’s most vulnerable residents and exposing taxpayers to further bailouts, said Claire Knowlton, a Los Angeles-based financial consultant for nonprofits and the report’s lead author.
“This is a wake-up call,” Knowlton said. “It’s time to dig in and figure out a vision for this sector moving forward.”
Once considered a national leader in homeless housing, the trust announced in early 2023 it could no longer manage its 2,000 units across 29 properties, many of which were renovated, century-old single-room occupancy hotels in and around Skid Row. The decision came after years of financial trouble with buildings in disrepair and disarray, replete with squatters, crime, nonfunctional elevators and clogged and broken toilets.
City of Los Angeles leaders pushed the trust into receivership and, after 18 months, all the properties were transferred to new owners. The city allocated nearly $40 million to finance the receivership, though the new owners reimbursed some of the money upon taking control. The trust declared bankruptcy and dissolved in January.
Researchers received access to the trust’s internal financial data and interviewed more than 30 people, including former trust executives and those knowledgeable about its operations, to produce the report.
The report, which was funded by the Conrad N. Hilton Foundation, is not meant to be a definitive understanding of the trust’s failure, Knowlton said. Times reporting has shown questionable decision-making, financial mismanagement and unstable leadership marked the organization’s final few years. The report did not examine specific actions made by trust executives. Joanne Cordero, the trust’s final CEO who took over amid its spiral in late 2022, was a co-author.
The root of the trust’s problems, the report determined, was that tenants’ public rental subsidies did not provide enough revenue to manage the buildings, including costs needed to assist those dealing with mental illness and drug addiction. All trust properties, including newer buildings with studio and one-bedroom apartments, were running annual deficits — nearly $1 million in one case — once factoring in long-term maintenance expenses, the report found.
Not only were the rental subsidies insufficient to cover costs, but also the funding came through multiple programs that paid the trust wildly disparate rates for rooms without any clear way to increase them. Similar trust buildings received subsidies priced at a difference of up to $600 per unit per month.
The report called the calculation of these rates “cryptic” and their variability “indefensible.”
“The subsidies are not covering the cost,” Knowlton said. “The increases are inconsistent. The subsidy types are inconsistent, and there’s no reason.”
The report cites 2015 as a turning point for trust properties. That year, the region implemented a new coordinated entry system for placing homeless residents into trust buildings and other supportive housing through a process designed to prioritize rooms for the neediest.
The system has been criticized broadly among homeless housing providers for taking too long to match potential residents with units and for concentrating too many people with mental illness, physical disabilities and addiction problems within buildings.
After its implementation, vacancies in trust buildings skyrocketed, which further sapped the organization’s revenues. Spending on security immediately jumped from $50,000 annually prior to 2016 to well over $500,000 after, and ultimately soaring above $1.4 million by 2022.
Knowlton said she could not determine that the coordinated entry system was the source of these problems as other factors played a role. The portfolio’s vacancies were stabilizing until staffing and maintenance woes amid the COVID-19 pandemic in 2020 sent them spiraling. Deteriorating conditions in Skid Row broadly over the same period also could explain the greater security needs, she said.
Still, Knowlton said that local leaders should reevaluate decisions to house those with the most severe health problems in single-room occupancy hotels, which have shared kitchen and bathroom facilities.
“I don’t think single-room occupancy is the right type of housing for people with high levels of mental health needs or extreme substance use issues,” she said.
Reaching similar conclusions during the receivership, city housing officials advocated for tearing down trust SROs and replacing them with new efficiency and one-bedroom apartment buildings, but they abandoned that plan as too risky, expensive and disruptive.
Knowlton is pushing to overhaul the region’s system for funding supportive housing, noting that the problems she identified were universal.
Rent subsidies, Knowlton said, should be set to the cost of providing supportive housing, including social services. Doing so, however, would require significant and ongoing funding boosts at the federal level, which she deemed “extremely ambitious.” In the short term, she argued government agencies should increase and standardize the subsidies to reduce their variability.
“That’s going to give us the time and the cushion that we need to really set that longer term vision around how these buildings are stewarded as public assets, as community assets, because that’s what they are,” she said.
The alternative could be worse, she said. Other supportive housing providers have shown signs of stress. SRO Housing Corp., a similar nonprofit landlord operating 30 supportive housing buildings with a large presence in Skid Row, has documented its financial challenges for years. In December, tenants at one building alleged vermin infestations, broken elevators and sewage leaks in a lawsuit.
When the trust failed, the city stepped in to save critical last-resort housing, but at great cost to taxpayers and without resolving underlying problems in the supportive housing system, Knowlton said. Federal, state and local leaders should do everything they can to avoid a similar situation from occurring again, she said.
The trust’s collapse, Knowlton said, was, “a canary in the coal mine situation.”
Times staff writer Douglas Smith contributed to this report.