How Much White Collar Crime With the 101 Ash Street Deal Is Acceptable?
The San Diego City Council will get an update today on what’s going on with the legal battles over the fiasco surrounding the city’s attempt to lease-to-own agreement for the former Sempra Energy headquarters at 101 Ash Street in 2016.
Word is they’ll be considering some kind of settlement of yet another terrible episode in the history of America’s Finest City. Everything I’ve read or heard about this proposal (and/or another deal in the works) doesn’t hold those responsible in any significant way.
Trust me, on the basis of what I’ve seen, nobody will be excluded from the SD Chamber’s 151st Anniversary Celebration later this week. There'll be high fives all around for another scam benefitting the city’s monied class.
We –the people– are about to get hosed, if observers are right. Homeless humans are going to jail because they can’t pay tickets for sleeping on the street while the people involved in this deal might get a slap on the wrist.
The San Diego Union-Tribune coverage says the city will kiss the $60 million it’s invested in an asbestos-filled building goodbye. And that’s not counting whatever the lawyers have been taking home. AND, fixing the problem acquiring the building was supposed to solve
The backstory on this is: the city needed a space to consolidate its office workers, who are presently scattered all over downtown and elsewhere; the total dollars in rent being paid is certainly more than the probable cost of a consolidated facility.
The upsides of a single location would be (an eventual, if not immediate) $44 million in savings for the city and more accessible services for citizens. Ideas about the city constructing a building have been floated in the past and immediately shot down by the ‘government is a waste’ people.
Here are the particulars of a real estate deal gone bad:
The property at 101 Ash was pitched to the city but deemed not advisable in large part because Doug Manchester, a major donor to GOP political campaigns, was an investor.
Manchester ponied up $427,850 in support of Mayor Kevin Faulconer’s campaigns from 2013 to 2016. The San Diego County Republican Party spent $581,000 supporting Faulconer after receiving $257,000 directly from Manchester Financial. Manchester also contributed $150,000 to the California Republican Party which then contributed to the local party's campaign efforts.
On September 6, 2016, then-Mayor Kevin Faulconer directed top City officials to pursue a lease deal instead of a direct purchase to obscure the pay off to Doug Manchester.
Cisterra Development simultaneously purchased the building from sellers Sandor “Sandy“ Shapery and “Papa” Doug Manchester as the lease deal with the city was made. Voila! Bad optics problem solved, and Manchester gained $5 million on a short term $20 million investment.
The deal included language saying the property be accepted “AS-IS, WHERE-IS, WITH ALL FAULTS.” Additional language in the Lease Agreement precluded any liability for Cisterra. The City failed to conduct any due diligence on its own as to the condition of the building.
City officials agreed to pay $535,000 a month for the property, though an appraisal concluded that market rent for similar office space was $337,000 per month.
On October 17, 2016, the City Council voted unanimously to approve the 101 Ash Street lease-to-own agreement. The motion, by Councilmember Todd Gloria, was seconded by Councilmember Scott Sherman.
Only after the City took possession of the property was it discovered that there were significant maintenance issues including considerable asbestos problems. Twenty two contractors are suing the city claiming they were unnecessarily exposed to asbestos. It’s been estimated that bringing the property up to code will cost as much as $115 million.
The City Council and the City Attorney’s office got the bum’s rush to support the deal. Both entities have made dubious denials about why they didn’t serve as a check on the details of a major financial commitment.
City Attorney Mara Elliott’s excuse is that she signed off on the deal after only one week in office. She was working on property acquisition issues as a Deputy City Attorney, had a month-long period for her predecessor to bring her up to speed, and protested way too loudly when asked about her involvement.
Jason Hughes, the City’s private real estate advisor, admitted to a relationship with Cisterra in which his “volunteer” services netted him a cool $9.4 million on the Ash Street deal and another building with lease issues.
In July, City Auditor Andy Hanau issued a report critical of former Mayor Faulconer, the City Council and the City Attorney’s Office. Mara Elliott refused to participate in the fact finding, and then had the nerve to criticize the audit as incomplete.
I could go on following the breadcrumbs left in this deal, but why bother? There is a tangle of lobbyists and consultants who’ve played a role in this debacle, and who are continuing to be involved in negotiations toward a settlement.
From The Union-Tribune:
The discussion Tuesday will be the second closed session convened in the past three weeks to discuss the Ash Street lawsuits.
It comes after Elliott, her top deputies and several senior aides to Mayor Todd Gloria have been meeting privately with lobbyist Christopher Wahl of Southwest Strategies over most of the past year in an effort to resolve the lawsuits. Over the past two years, Wahl and his co-workers have contributed or raised more than $200,000 for elected officials, candidates and political parties, including Gloria, Elliott and eight of nine current members of the City Council.
The Union-Tribune’s story on what a settlement stemming from a citizen lawsuit might entail includes having the city walk away from the deal, kissing all the money they’ve spent goodbye. In return, the landlord, Cisterra Development; its lender, CGA Capital, and “volunteer” real estate adviser Jason Hughes, owner of the Hughes Marino firm would be banned from doing any business with the city for five years.
There is plenty of speculation concerning a separate settlement deal negotiated by the City Attorney’s office. One can only wonder if it includes a council resolution praising themselves and Elliott for their excellence in oversight.
La Prensa San Diego, whose reporting would seem to indicate they’ve got an inside source, tells a different story.
A settlement on the 101 Ash Street deal would include a reinstatement or signing of a new lease to replace the tainted 2016 deal, as well as financial arrangements to finance the needed improvements to the building allowing the city to eventually occupy the space.
Sources close to the secret negotiations confirm that the City’s legal team, including City Attorney Mara Elliott’s office, is crafting a global settlement that would include Hughes returning the money he made in the deals in exchange for a decision by both the City Attorney and District Attorney Summer Stephan to not pursue criminal charges against him.
The elected City Attorney has the power to file misdemeanor charges for crimes committed within the City, and the District Attorney has the power to file both misdemeanor and felony charges anywhere in the County.
The City filed a lawsuit last year claiming Hughes had an undisclosed conflict-of-interest in both the lease deals he helped negotiate, and invoked the provisions of California Government Code Section 1090 to invalidate the agreements.
There can be no “this is the best deal we can get” implicit in any City Council agreement to settle the lawsuits surrounding 101 Ash Street.
Nope. Whatever deal gets made also has to include a promise to seek whatever legislation is necessary to put the brakes on our city government for sale to the highest bidder. I really hope Kevin Faulconer is foolish enough to run for Governor of California, so everybody in the state can hear about this sleazy dealing.
Email me at WritetoDougPorter@Gmail.com