Battle rages over supportive housing in Santa Monica

It was a scene that left residents of this pricey, palm-lined Santa Monica neighborhood flabbergasted.

Without warning, some 50 strangers had suddenly arrived in vans and were occupying a vacant building on Ocean Avenue the night before Thanksgiving.

Some of them smoked cigarettes, others had dogs running around unleashed, and at least one fight broke out during the boisterous move-in.

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

But Oelsen and her neighbors would soon learn that these new arrivals were clients of an unannounced and unpermitted sober living operation — a revelation that has triggered outrage among residents and once again pitted Santa Monica officials against a controversial Los Angeles developer.

The dustup over the sober living center is just the latest in a series of clashes between city officials and Leo Pustilnikov, a developer who was recently ousted from the Downtown Santa Monica Board of Directors for “not being a helpful contributor.” The episode has also focused harsh light on a proposal by Pustilnikov and others to convert two senior living facilities into luxury housing.

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

The buildings, which were purchased by the Bourne Financial Group in early 2023 for $13 million, are leased by Pustilnikov, who said he is trying to earn rental income from them while he seeks change of use permits from the city.

But Ocean Avenue residents were quick to condemn the sober living facility, complaining that it posed a potential safety hazard and that residents were never informed of the plan or allowed to comment on it.

Faced with the public outcry, officials imposed fines against Pustilnikov and ordered facility staff to remove the patients. By the following Monday, the property was cleared out.

It was the second time in just a few months that Pustilnikov’s attempts to fill the building had been thwarted. A plan to house county behavioral health patients at the site this past summer was also scrapped.

“I didn’t realize you’re not allowed to help people that are struggling in affluent communities,” Pustilnikov said.

Pedestrians along the walking path on Ocean Boulevard.

(Christina House / Los Angeles Times)

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

Developers often do what they can to speed up the process, so that they realize a profit faster, and minimize their losses during the rezoning process. In Pustilnikov’s case, that means renting to nonprofits to generate some income until he can redevelop the property for luxury housing.

“I don’t try to hide the ball,” Pustilnikov told The Times. “The idea was always, I pay the property owner, someone pays me rent, I more or less break even and I have time to entitle the property for something bigger.”

Pustilnikov has built a reputation as a shrewd businessman who pursues unconventional real estate deals. The 39-year-old developer pioneered the playbook for forcing high-density “builder’s remedy” projects in Santa Monica and other affluent cities. He is also one of the region’s leading private providers of low-income housing and has a soft spot for rescuing historic L.A. buildings.

His strategies often involve exploiting legal loopholes and tying up loose ends in court. He has been accused in civil litigation of attempting to inflate purchase prices to secure larger federally backed loans, allegations he denies, and has been involved in bitter disputes with business partners over ownership stakes.

More recently, residents of his Skid Row developments told The Times that sanitation and security services degraded months after he purchased 17 aging buildings held in receivership by the city of Los Angeles. Pustilnikov chalked the issues up to growing pains, given the scale of the acquisition.

One of two Ocean Boulevard properties that have generated controversy in Santa Monica can be seen in the background as a woman walks through Palisades Park recently.

(Genaro Molina / Los Angeles Times)

The Thanksgiving chaos wasn’t the first time residents said they had been blindsided by plans for the property.

Over the summer, neighbors noticed the vacant building was being renovated. It was repainted, security cameras were installed and a “private property” sign was posted. Months later, the county explained why: 49 behavioral health patients enrolled in a county transitional housing program were slated to move in.

As it turned out, Pustilnikov and his partners Bourne Financial Group and St. Joseph Center had approached county mental health officials about using the building. The county ultimately awarded them $3.5 million in bridge housing funds to renovate and house homeless Santa Monicans.

But there was immense backlash. The City Council purported to be just as clueless as residents and the plan was eventually halted, with the county taking responsibility for its lack of communication with neighbors. When asked if the county provided any of the $3.5 million in funds to Pustilnikov for the renovations before the project was canceled, the county declined to say.

After that plan fell through, Pustilnikov said he was “done” trying to get the building filled. That is, until the operators of a sober living facility approached him.

“I said, ‘Sure, why not?’ It sounded fine. They seem like reputable people,” he told The Times in a phone interview.

A runner passes along the path on Ocean Boulevard.

(Christina House / Los Angeles Times)

So Pustilnikov pivoted, leasing to Pacific Coast Healthcare in November.

But before the operators had obtained a business license or move-in approval from the city, residents were being shuttled in, according to City Manager Oliver Chi. Pustilnikov said he was not aware the company would be moving them in the middle of the night. Pacific Coast Healthcare did not respond to The Times’ requests for comment.

Neighbors and some city leaders have not been happy with Pustilnikov’s approach.

“They brought all those folks in and then it took them a few days to relocate them. To an addict, all that chaos is just an opportunity for a relapse,” Santa Monica City Councilmember Lana Negrete said. “Are we exploiting vulnerable populations in order to float some 20-story luxury project?”

In Santa Monica, businesses are boarded up, tourism is in a slump and crime has become more visible. It’s a trend officials acknowledge is entangled with the city’s increase in homelessness. Recently, the City Council announced a financial emergency fueled by legal payouts and a decline in economic activity downtown that hasn’t recovered since the pandemic.

The city worked with Pustilnikov back then, too. In 2020, he purchased retail space in the Third Street Promenade, then defaulted on $19 million in loan payments. Last year, the City Council ousted him and other appointees from the Downtown Santa Monica Board of Directors.

His track record has left the city’s new mayor, Caroline Torosis, who recently succeeded Negrete, skeptical.

“I think that you need to center the needs of the people that you’re trying to help and ask, ‘Does it serve someone to pull the rug out from under them?’” Torosis said. “Anyone who wants to work with us in earnest to solve our affordable housing and homelessness crisis, we want to work with. … That said, his actions in and around the city leave us with questions.”

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