Faulconer's Failure at 101 Ash St.

The City of San Diego’s very real need for administrative office space has facilitated a political disaster. Controversy (and impending legal actions) associated with the city’s attempt to acquire an office tower once used by the local power company will last until the end of the decade.

The short version of what happened is that the city staff (who operate under the mayor) agreed to a less than optimal lease-to-own deal, the City Council approved it after hearing city staff spin its virtue.  ...and then the property’s deficiencies came to light.

Enter “Papa” Doug Manchester, a backer of Mayor Faulconer’s political career, who owned 49% of the building, (Sandy Shapery was majority owner). The Manchester Financial Group branded the top of the building and temporarily took possession of the top two floors.

They offered to sell the building  -which based on Manchester’s buy-in was worth $40 million-- to the city for $84 million.

An article in La Prensa asserts that making a deal not involving the city cutting a check to Manchester was a priority for Faulconer’s office, since it would be politically unwise.

• A top senior staffer argued in a meeting in the Mayor’s office on September 6, 2016, that a direct purchase would save taxpayers more than $16 million by using municipal bonds that pay a lower interest rate than the costs of the financing through the lease, but Mayor Faulconer pushed for the lease so that a middleman company, Cisterra Development, would be the seller paid by the City, and Cisterra, in turn, would pay Shapery and Manchester, according to people in the meeting. Everyone was instructed to avoid using Manchester’s name in discussing the agreement to purchase the building.

• The lease-to-own agreement raised the overall cost of acquiring the building because of higher corporate interest rates Cisterra locked into the deal when compared to municipal bonds the City could have used to finance the purchase. Using muni bonds also would have allowed the City to refinance them in 10 years if rates had dropped; instead, the lease deal locked the City into fixed costs for 20 years.

A lawsuit filed by several attorneys says the people selling the property made fraudulent claims to city staff as to the building’s condition. Sandy Shapery denies those claims, and says it was the city’s decision after signing off on the deal with Cisterra to significantly expand the property’s occupancy that has caused it to be unsafe. 

What was supposed to be a $10,000 power wash prior to occupancy has grown into an estimated $115 million in repairs to abate an asbestos problem.  More than $20 million has already been spent by the city in what has thus far been a futile attempt to make it habitable. 

City government has already been hit with more than two dozen legal claims related to its conduct with regard to the property. The mayor has decided, following a lot of noise about how foolish a deal this is, to stop making the $535,000 monthly rent payments.

Whose actions have led us to this debacle? 

Certainly we can blame soon-to-be-departed Mayor Kevin Faulconer, who directed his staff to insist to councilmembers a lease-to-own deal was the best possible route toward acquiring the property. 

How about a variety of members of past and present city councils? The vote to buy the building was unanimous. Only David Alvarez questioned the lease vs purchase options, and he was talked out of it by city staff.

Is City Attorney Mara Elliott to blame? The deal was no good until she signed off on it. The language in the sales contract said the city was acquiring the building “as is.” 

Although a duly authorized Deputy City Attorney blessed the deal, former City Attorney Jan Goldsmith told La Prensa Elliott had access to all the inner workings of his office starting the day after she won the election. She has maintained her non-involvement was justified because she wasn’t sworn in until a week before the deal was approved.

And what about the real estate owners, agents, and investors? Owner Sandy Shapery wrote an op ed for the Union-Tribune asserting that the city was completely aware of the building’s condition and had received documentation about what was then a dormant asbestos issue. 

• Contrary to what some government officials said, the city did inspect the building prior to the acquisition, through multiple site visits by city officials, real estate experts and engineering staff accompanied by me or my associate working for me. The city was free to commission any additional inspections it believed were needed. City decision-makers concluded that the building was ready to occupy as it was configured and furnished. Which it was. However, as the city’s own experts concluded, the reason the city cannot now occupy the building is because of how the city and its contractors performed the remodeling job they conceived of and executed after taking possession. The problem has nothing to do with the acquisition. It is the product of poor planning and execution.

Controversy over the deal heightened after somebody pulled a fast one on the local NBC News affiliate, setting them up with a forged document making former councilman/mayoral wannabe Todd Gloria and the City Attorney’s office look bad. 

At issue was footnote #15. The legal firm who’d created the document claimed under penalty of perjury it didn’t exist on the authentic report, and they had no knowledge of any of the assertions made in the footnote. 

NBC later said the document came from an anonymous source, but was initially vouched for by a reliable source, who later retracted their confirmation.

Who would benefit from that fakery? 

Could it be council present and mayoral candidate Barbara Bry, who leveraged the noise about a forged footnote into a $1000+ of Facebook advertising? 

She’s been in full accusatory mode because Councilman Gloria made the motion (seconded by Scott Sherman) to buy the property… based on what they’d been told by the city staff.

The idea that 101 Ash is “Todd Gloria’s deal” being pushed by Bry has been given a life by a fraudulent report. This reflects poorly on her campaign.

Part of Bry’s pitch involves the old saw about business types knowing more than government bureaucrats when it comes to running things. One need look no further than the White House to see the lack of merit in that particular argument.

Bry, on the other hand, in 2018 voted to continue throwing good money ($30 million) after bad, once again, based on what the council had learned from city staff. Gloria was no longer on the council at that point.

Either way, this faux finger-pointing should be a nothingburger of an election issue. 

Make your choice on who to vote for mayor on something with actual substance, please.

What about Cory Briggs, the candidate for City Attorney who’s kept his long-shot candidacy alive by questioning Mara Elliott’s competence?

His campaign has highlighted a report from Moody’s Investor Service that essentially says the city should have known better. (No sh*t, Sherlock) The failures were spread throughout the city’s administrative agencies, including by inference the City Attorney’s office.

Briggs has a point, one which could easily be refuted by Mara Elliott by simply asking the city council to make reports on the deal public.

I don’t believe that either Bry or Briggs would knowingly participate in such a forgery scheme. But there are people on the fringes of every political campaign who might do such a thing. 

Or maybe, just maybe, the reporters at NBC7 were targets of an effort to ruin their credibility. The station is, after all, known for its aggressive local reporting.

If whoever is behind this forgery was any good at what they do, we’ll likely never know. 

The fundamentals of this deal-gone-bad were dictated by political expediency. And that points the finger at Mayor Kevin Faulconer, whose deal making legacy, I predict, will only get worse with time. After years of ducking the blame for decisions, it’s karma coming back to haunt him.

In the end, it’s probable taxpayers will be out a big chunk of change, political careers will be tainted, and city workers still won’t have a workspace.

It’s so San Diego.

Hey folks! Be sure to like/follow Words & Deeds on Facebook. If you’d like to have each post mailed to you check out the simple subscription form and the right side of the front page.

Email me at WritetoDougPorter@Gmail.com