What happened to the Stardust Inn in National City?

When a group of National City officials descended on the Stardust Inn on East Plaza Boulevard the morning of June 4, what they found was eye-opening. 

Trash and debris had piled up in what was the lobby. A series of fires over the past month had damaged part of the structure. Insulation, plumbing and electrical wires had been stripped out of the wall, and nearly every window at what was once a 34-bed motel was broken. 

As officials moved through the property they encountered seven transients who had been living there.

In total, the city found 367 separate violations of local and state codes at the property on the city’s main commercial thoroughfare.

Yet when officials contacted the owner, Elianna Reuben, about fixing the numerous problems with the property, Reuben said she did not have the funds to do the work, according to a city staff report earlier this year.  

As a result, National City took on the chore, boarding up windows and hauling off trash, according to the report. In all the city set aside some $450,000 to pay for the work. 

Now fenced up and with a security guard, the Stardust Inn — a place of no stars, and plenty of dust — was more than just a development project gone bad. 

It was one of 61 projects funded by a little-known state Department of Social Services grant program called Community Care Expansion. 

Just months before, the motel had been sold to Stardust Senior Communities, Inc., a company owned by Reuben who also owns a six-bed adult residential care home on a quiet La Mesa street. Reuben planned to transform the motel into a 68-bed adult residential care facility. 

To do that, she applied for and got a $9.4 million grant from the Community Care Expansion program — a sliver of the $570 million in grant funds the program had via 2021 legislation that set it up. 

And while a handful of those projects have been built and others are in the process, the Stardust Inn is one of two grants that so far have failed — both, coincidentally, in the South Bay. 

The other is about 10 miles away at the former Hotel Primera on East Calle Primera in San Ysidro. In February 2023 the state awarded a $24.5 million grant to Shangri-La Industries, LLC, a Los Angeles developer that intended to turn the hotel into 65 permanent supportive housing units for homeless residents.

But that plan went awry as Shangri-La was consumed in controversy and piles of litigation over its use of $115 million in grant funds from a second state grant program — the heralded Project Homekey that was designed to buy up motels to house previously unhoused people. 

In late 2023, Shangri-La defaulted on seven motel conversion projects that had received the state grants. Earlier this year, Attorney General Rob Bonta sued the company in Los Angeles Superior Court seeking to get the money back. The company is also suing its former chief financial officer for embezzlement, and is simultaneously in bankruptcy court.

The state took over the project when it concluded Shangri-La was “unable to fulfill their obligations” under the program rules, a spokesperson said.

Both the San Ysidro and National City projects are now in a kind of limbo. They are categorized as “Project in Transition” on the state data dashboard listing all the grant awards.

The National City and San Ysidro projects are the latest example of state grant programs aimed at increasing housing for vulnerable populations to encounter problems. 

In addition to the Project Homekey controversy with Shangri-La and the two failed CCE projects in San Diego, a third program launched in 2021 also has come under scrutiny.

The Foreclosure Intervention Housing Preservation Program was launched with $500 million set aside in grants and loans to help renters, community land trusts and affordable housing groups buy buildings that were about to be foreclosed on. 

But after three years, the program did not make a single grant or loan. In June, as state lawmakers wrestled with a budget shortfall, they terminated the program. 

A spokesperson for the social services department said the state is now looking for new partners to take over both the National City and San Ysidro properties, along with however much grant money is left on each. 

“It’s also important to note that of the 61 total CCE funded projects, this project and the Senior Coast Living project … are currently the only two projects where CDSS is seeking replacement sponsors,” said spokesperson Scott Murray. 

He said the new owners would have to develop the property “in a manner consistent with CCE program guidelines.” 

In an interview, Reuben and her attorney Alyssa White said a daisy chain of interconnected events led to the failure of the Stardust Inn project. 

While Reuben had been awarded $9.4 million, the state had released just under $8 million for purchase of the property — and declined to release more. 

Reuben needed $500,000 to do an initial demolition on parts of the motel, in order to make the rooms a uniform size, White said. But state officials overseeing the grant declined to release more funds for that purpose. 

White said Reuben could not get a construction or bridge loan either to do the work, because to get one she needed updated permits. In order to get the updated permits, she needed corrected plans — which in turn required her to do the demolition, which the state would not fund.

“They said they would consider our request and get back to us,” White said, “and ultimately they said no. They did not give us an explanation as to why they were making that decision to decline the request.”

Reuben had put in nearly $2 million of matching funds into the project, according to a copy of her grant application. She let White answer most of the questions about the project, but said she had “put my heart into this project.” She said she was confident she could develop her plan, and said the state should shoulder blame. 

“I had no problems with the scope of the work,” she said. “It was the red tape with the grantor.”

White said that as the back-and-forth with the state went on earlier this year, Reuben took steps to secure the property after National City officials contacted them about the deteriorating conditions at the motel. 

The city staff report said that police received “numerous calls for service regarding trespassing and other concerns” in May and June. And the Fire Department twice had to cap natural gas leaks there, records show. 

“We took steps to try to prevent what was going on,” White said. They put up fencing and hauled out some trash. But she said when fencing was installed, it was easily cut and people could enter the property. 

Martin Reeder, the assistant community development director for National City, said that city officials met several times with Reuben’s development team, but those meetings stopped earlier this year. As the complaints about the property piled up the city urged Reuben to address the problems.

“We were trying to get compliance from them to clean the property up,” he said. What exactly the city did is not known: inewsource requested all communications surrounding the property in August but the city has not produced a single record.

In her application to the state Reuben said she had support from San Ysidro Health, a large nonprofit that provides health care services, and provided a letter from Kevin Mattson, the organization's president and CEO.

Mattson said San Ysidro Health had a contract with Coastal Injury Care Center, the six-bed La Mesa facility Reuben also owns, to place patients. But he said his organization has never done so, primarily because there has never been a bed available when needed.

He said that in 2022 Reuben approached the organization and said she had an opportunity to expand how many beds she would offer and asked for a letter of support. 

Mattson signed off, though he said in an interview that he believed the expansion would be at a property in La Mesa or El Cajon. 

For now, the Stardust remains fenced off. Records provided by the state show it is paying about $5,800 a week from the grant funds for a full-time security guard.

White said that Reuben is cooperating with the state and the city as they look for a new sponsor to develop the project.