The battle continues for supportive housing in Santa Monica

It was an incident that left residents of this expensive, palm-fringed Santa Monica neighborhood stunned.

Without warning, about 50 people in vans suddenly arrived and sat in a vacant building on Ocean Avenue the night before Thanksgiving.

Some of them were smoking cigarettes, others had dogs running loose, and at least one fight broke out when loud people entered.

“If I didn’t know what was going on, I would have thought it was a play,” resident Ashley Oelsen recalled.

But Oelsen and his neighbors would soon discover that the newcomers were clients of an undeclared and unsanctioned stable — a revelation that sparked outrage among residents and once again pitted Santa Monica officials against a controversial Los Angeles developer.

The outbreak of a sober living facility comes amid a series of disputes between city officials and Leo Pustilnikov, a developer who was recently fired from the Downtown Santa Monica Board of Directors for “lack of constructive input.” The episode also cast a harsh light on the proposal by Pustilnikov and others to convert the two upper residences into luxury houses.

The vacant, low-rise buildings at 413 and 825 Ocean Ave. they sit on a prime, blufftop lot overlooking Palisades Park and the Pacific Ocean. While the buildings have been designed for use as supportive housing for years, they are surrounded by swank condominiums that have sold for as much as $7 million.

The buildings, purchased by Bourne Financial Group in early 2023 for $13 million, are leased by Pustilnikov, who said he is trying to get rent from them while seeking to change the city’s use permits.

But residents of Ocean Avenue quickly criticized the shelter, complaining that it posed a safety risk and that residents were never informed of the plan or allowed to comment on it.

Due to public outcry, officials fined Pustilnikov and ordered the facility’s staff to evacuate patients. By the following Monday, the site had been cleared.

It was the second time in just a few months that Pustilnikov’s attempts to fill the building had failed. A plan to house well-behaved health patients in the area last summer was also scrapped.

“I didn’t realize you weren’t allowed to help people who are struggling in wealthy communities,” said Pustilnikov.

Pedestrians on the Ocean Boulevard sidewalk.

(Christina House/Los Angeles Times)

Rezoning in Southern California is an expensive and time-consuming process that involves a lot of government red tape.

Developers often do their best to speed up the process, to get a quick profit, and minimize their losses during the redesign process. In Pustilnikov’s case, that means renting to non-profit organizations for some cash until he can redevelop the property for luxury housing.

“I’m not trying to hide the ball,” Pustilnikov told The Times. “The idea was always, I pay the landlord, someone pays me rent, I break the law and I have time to approve the property for something big.”

Pustilnikov has built a reputation as a shrewd businessman who pursues unconventional territory deals. The 39-year-old developer has pioneered a playbook for pushing densely packed “builder solution” projects in Santa Monica and other affluent cities. He’s also one of the region’s leading private real estate providers and has a soft spot for saving LA’s historic buildings.

His tactics often involve exploiting legal loopholes and tying up loose ends in court. He was charged the proceedings of trying to inflate purchase prices to obtain large government-backed loans, allegations he denies, and has been involved in bitter disputes with business partners over ownership stakes.

Recently, residents of his Skid Row development he told The Times that the sanitation and safety services are degrading months after purchasing 17 dilapidated buildings held by the city of Los Angeles. Pustilnikov answered the problems to the point of growing pains, given the magnitude of the discovery.

One of the two controversial Ocean Boulevard spots in Santa Monica can be seen in the background as a woman walks through Palisades Park recently.

(Genaro Molina/Los Angeles Times)

The Thanksgiving riots weren’t the first time residents said they were shocked by the area’s plans.

During the summer, neighbors saw the vacant building being renovated. It was repainted, security cameras were installed and a “personal property” sign was put up. Months later, the county explained why: 49 well-behaved patients enrolled in the county’s temporary housing program were slated to move in.

As it happens, Pustilnikov and his partners Bourne Financial Group and St. Joseph Center have contacted regional mental health officials about using the facility. The county eventually gave them $3.5 million in bridge housing funds to rehabilitate and house homeless Santa Monicans.

But there was a big setback. The City Council is said to have no knowledge of the residents and the project was eventually stopped, the district was responsible for the lack of communication with the neighbors. When asked if the district gave Pustilnikov any of the $3.5 million for repairs before the project was canceled, the district declined to say.

After that plan came to fruition, Pustilnikov said he was “done” trying to fill the building. That is, until the staff of the cool shelter approached him.

“I said, ‘Sure, why not?’ It felt good. They seem to be decent people,” he told The Times in a telephone interview.

A runner crosses the path on Ocean Boulevard.

(Christina House/Los Angeles Times)

So Pustilnikov declined, leasing it to Pacific Coast Healthcare in November.

But before the drivers could get a business license or permit to enter the city, residents were locked inside, according to City Manager Oliver Chi. Pustilnikov said he did not know that the company would deliver them at midnight. Pacific Coast Healthcare did not respond to The Times’ requests for comment.

Neighbors and other city leaders were not happy with Pustilnikov’s approach.

“They brought all those people in and it took them a few days to move them to another place. For an addict, all that chaos is an opportunity to get back,” said Santa Monica Council Member Lana Negrete. “Are we using vulnerable people to build a 20-story luxury project?”

In Santa Monica, businesses are on the rise, tourism is on the decline and crime is on the rise. It’s a trend that officials admit is fueled by the city’s growing homeless population. Recently, the City Council declared a financial emergency fueled by official defaults and a decline in the city’s economic activity that has not recovered since the start of the pandemic.

The city worked with Pustilnikov then, too. In 2020, he bought a retail property on the Third Street Promenade, then paid $19 million in mortgage payments. Last year, the City Council fired him and other appointees from the Downtown Santa Monica Board of Directors.

His record made the new Mayor of this city, Caroline Torosis, who has just stepped into Negrete’s shoes, doubtless.

“I think you need to focus on the needs of the people you’re trying to help and ask, ‘Is it helpful for someone to pull the rug out from under them?'” said Torosis. “Anyone who genuinely wants to work with us to solve our affordable housing and homelessness problem, we want to work with them. … That said, his actions in and around the city leave us with questions.”

Despite recent missteps, Pustilnikov is in talks with the Department of Mental Health to explore other sites in Santa Monica near existing service providers, county Supervisor Lindsey Horvath’s office confirmed.