Something’s Rotten Downtown and It Ain’t the 101 Ash Street Settlement
Mayor Todd Gloria Did the Right Thing: Convince Me Otherwise
It’s been 50 years since I became aware of scandals involving the San Diego City government. I’ve acquired a cynical eye when it comes to the mayor’s office, starting with my first experiences as a cub reporter with the underground press.
A thumbnail history…
A Los Angeles- based federal organized-crime strike force investigation into the relationships between cops and bookies in San Diego in the late 1960s spanned the breadth of local politics.
The cast of shifty characters included C. Arnholt Smith, aka “Mr San Diego of the Century,” sidekick John Alessio, owner of the Caliente race Track in Tijuana, the chief of the SDPD –who got a new car annually from Smith’s Yellow Cab Company–to Mayor Frank Curran and eight City Council members who were indicted for giving Yellow Cab a 22% fare increase in return for political contributions..
Curran and his cohorts at city hall eventually walked scott free on the bribery charges after the Nixon administration blocked the testimony of an Internal Revenue Service agent named David Stutz.
And so it goes in San Diego.
Mayor Roger Hedgecock was indicted in 1985, charged with felonies related to receiving over $350,000 in illegal campaign funds and was forced from office because of the scandal. He eventually skated on all but one of the charges after it was learned that a court bailiff attempted to influence the jury with gifts of alcohol.
He went on to drift across the political spectrum, ending up as a right wing radio talk show host before retiring in 2016.
Mayor Dick Murphy resigned in 2005, after Time magazine named him one of the three worst big-city mayors in the country. At the time the Securities and Exchange Commission was investigating city finances and allegations of securities fraud. The FBI was conducting a criminal investigation into possible public corruption. And Wall Street rating firms repeatedly downgraded the city's bond rating in the face of a looming $1.35 billion pension shortfall.
Murphy never faced criminal charges and went on to write a book entitled "San Diego's Judge Mayor: How Murphy's Law Blindsided Leadership with 2020 Vision." His legacy, like it or not, is the quip about San Diego being Enron-By-The-Sea.
The city’s pension shortfall, which stemmed from bad decisions made in the previous decade, became the excuse for a Carl DeMaio-driven ballot measure stripping newly hired city employees of pensions. That measure was later overturned by the courts.
We’ll be paying for that act of spite for years to come.
Deputy Mayor Zucchet served as acting mayor for just three days in 2005 after Murphy’s resignation before he stepped down upon his conviction for corruption in the “strippergate” scandal. He was ultimately exonerated, however, and now heads of the city’s white-collar labor union.
Former Congressman Bob Filner’s ascension to the City’s top spot in late 2012 came after some backroom political horse trading. It was widely assumed that Filner’s take-no-prisoners attitude would be a death knell for the ingrained political forces that dominated city politics at the time.
Alas, this change was not to pass, as within months twenty women lined up to testify about sexual harassment and other misogynistic behavior. A recall election was being organized and hizzoner's bad behavior soon made the city the butt of late night jokes.
Nine months after taking office, Filner resigned, blaming a "lynch mob" for driving him from office and proclaiming, "I have never sexually harassed anyone." He was singing a different tune a few months later, he pled guilty to one felony charge of false imprisonment and two misdemeanor charges of battery
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Over and over and over again San Diego’s politicians have sold the citizenry short, either through incompetence or corruption.
Mayor Kevin Faulconer, who replaced Bob Filner following a special election, has thus far seemingly evaded the cursed San Diego tar brush. There were hinky real estate deals, like the white elephant building the city acquired at a ridiculous price to provide services (but not housing) to the homeless population.
The Chargers football team held out their hand for a generous contribution toward building a new stadium, but ended up leaving town when it became obvious it wasn’t going to happen.
Faulconer will likely never make it into the history books for the really bad deal he made at 101 Ash Street.
There was and is a demonstrable need for a consolidated office space for city employees; they are scattered about in leased spaces making synergy between departments more difficult and serving as an impediment against providing city services and resources to residents and businesses.
Former Mayor Jerry Sanders floated the idea of building a new city hall and it got shot down almost immediately. “Taxpayers will never support such an idea.” $294 million? “No way” said Carl DeMaio, backed by his legion of nattering nihilists, likely because such a building would make it harder to drown the government in a bathtub.
($294 million in 2010 dollars would be just shy of $380 million in 2022 dollars, by the way.)
There’s finger pointing galore on the 101 Ash Street real estate disaster, but the bottom line is No Faulconer = No deal.
Papa Doug Manchester, whose political largess made Faulconer’s ascension to mayor possible, was a stakeholder in the 101 Ash Street property, and his brand of brash talk and/or contempt for legal etiquette made acquiring the property problematic, so Job One in making this deal possible was to get him out of the picture.
Manchester bought a 49% stake in the building in 2015 for $20 million. He sniffed at the $5 million gain achieved over eighteen months as his share changed hands, likely because his ego couldn’t handle the concept of anything with his name emblazoned on the outside being a bad thing.
From Voice of San Diego:
Last week, when asked about Manchester’s donations over the years to Faulconer, Gustafson pushed back on any suggestion that the mayor in 2016 had tried to pull a fast one on the City Council.
“Political connections had nothing to do with this transaction,” he said. “The dumbest way ever to secretly benefit a campaign contributor is to buy a building with that contributor’s name on it.”
Everything about the deal for 101 Ash Street was a disaster. The sanitizing part of the sale included bringing on Cisterra Partners as the agent. A lease-to-buy plan negotiated with the city included “as-is” language, despite warnings about the building’s condition.
Excerpts of a preliminary legal review of the purchase, leaked to NBC 7, contend that by acting as a middleman in a major real estate transaction, Cisterra didn’t have an incentive to look closely at the building’s true condition.
At the same time, officials never sought an independent assessment of 101 Ash St. and instead took claims by Cisterra and the owners that the building was in excellent condition at face value. Some of the disclosure documents the sellers turned over were based on mere visual inspections of the site.
Had officials dug deeper, they would have discovered that the building’s fire safety and other critical systems needed repair. A consultant hired by the city now estimates the building will need about $115 million in repairs that could take up to four years to complete.
The property was built in the 1960s, purchased in the 1990s by Shapery, and for many years housed Sempra Energy. In 2014, James Seifert, the company’s real estate chief, testified to the California Public Utilities Commission that part of the reason the employees were leaving the building was because it needed significant capital improvements.
The city’s real estate consultant, Jason Hughes —who’d publicly promised his services at no charge to the city as an act of good citizenship– was, in effect, a partner in the property, His deal with Cisterra included a perpetual confidentiality and non-disclosure clause which protected the details of any financial arrangements between Hughes and Cisterra.
Hughes says he told the city about his stake in the deal. The city disagrees. It’s suing him to recover his cut on the deal, plus the $24 million in rent paid to Cisterra prior to suspension of payments.
Via LaPrensaSD:
Jason Hughes, President and CEO of Hughes Marino real estate brokerage firm, had served as a Mayor-appointed advisor to the City’s Real Estate Assets Department (READ) since 2013 and helped the City negotiate two 20-year lease-to-own agreements in which he had a secret participation agreement with the City’s landlord, Cisterra Development.
Hughes’ hidden participation was revealed yesterday in a sworn deposition of Jason Wood, a Cisterra principal and partner in both the ill-fated 101 Ash St. building approved by the City in December 2016, as well as a nearly-identical deal in 2015 to acquire the Civic Center Plaza (CCP) building where the City Attorney’s office is housed.
Wood testified that Cisterra had an agreement for Hughes to participate in the profits of the financing deals where Cisterra purchased the buildings and immediately leased them to the City.
Things really went downhill when the city simultaneously attempted to move some employees into 101 Ash and began what were supposed to be minor renovations.
From NBC 7:
Even in the original purchase agreement for the building was a warning:
“Buyer acknowledges that the building contains asbestos and that Sempra has maintained an asbestos monitoring and handling program…” reads the agreement obtained by NBC 7 Investigates.
In fact, building inspectors told council members that $10,000 worth of pressure washing was all that was required of the city of San Diego to perform at 101 Ash Street before giving the green light to move in.
The list of what needed fixing grew to include
In a March 2017 report obtained by NBC 7 from a third-party, an engineering firm hired to assess the building concluded the power system, HVAC system, and fire prevention system were in need of complete overhauls.
BSE Engineering's report found that the building was not up to current building code due to electrical deficiencies and, as was suspected, that “evidence of asbestos...would likely impact the design and implementation schedule and project costs,” reads the report.
Marlon Perez, an Assistant Engineer in the city of San Diego’s Engineering and Capital Projects Department did a walk thru with Fire Marshals, who found dangerous alterations that would enable a fire to spread quickly through the building.
His attempts to alert higher ups to the situation earned him a reprimand and ultimately got him booted from further involvement with the project. Perez filed a whistleblower complaint.
All of this happened while Kevin Faulconer was mayor. Fast forward to 2022.
Mayor Todd Gloria and a majority of the City Council last month agreed to buy out the leases for $132 million in a partial settlement of litigation.
This is when the “Todd Gloria made a rotten deal” came to a head. He was, after all, on the City Council when the original deal was made, and made flowery statements about its benefits to taxpayers.
This assumes Gloria had some extraordinary power to see through the lies and misstatements made by city officials under the leadership of Kevin Faulconer.
We’re stuck with a white elephant, one that can only get more expensive.
It’s important to remember that, regardless of any court decisions or settlements, the city is liable to asbestos claims;
the building was bought “as is”
due diligence –the responsibility of the executive branch, not the city council– wasn’t performed.
The asbestos contamination that occurred was the result of the city’s initial attempts at renovation,.i.e, we broke it and now we have to pay.
A (probably) forged legal consultant’s memo was floated in 2020 saying that the City Attorney had blocked investigators from interviewing Gloria. It did not say or imply that Gloria was aware of or had any part in the refusal to grant access.
This is where things get weird. A couple of ace reporters lost their jobs in the resulting fallout, even though they swore the memo’s contents were confirmed by a credible source.
What I can say about this incident in retrospect is that it happened in the middle of a political campaign where candidate Barbara Bry was aggressively trying to place blame on Todd Gloria for the 1010 Ash deal.
Via KPBS:
Bry has repeatedly sought to blame the 101 Ash Street scandal on Gloria because he supported the deal when he was on the council. She also used the now-retracted NBC story in attack ads on Facebook, but took them down on Friday. According to the Facebook ad library, the ads were seen between 125,000 and 150,000 times.
Bry said in a statement that neither she nor any of her council district or campaign staffers had any contact with NBC7 regarding the story.
"Mr. Gloria’s news conference was an attempt to resurrect a failing campaign and shift public’s attention from his responsibility for the terrible 101 Ash Street transaction," Bry said.
Another player in this story worth looking at is City Attorney Mara Elliott, whose actions are –at best– a head scratcher. Her fingerprints are all over this, and at every stage where doubts have arisen she has asserted her only interest lies in protecting the interests of the City of San Diego.
Elliott was supposed to be one of the white hats at City Hall, but she sure is defensive about a lot of things. Either she’s selling a manufactured version of the truth or much of the city bureaucracy is flinging poo at her.
There’s former city Chief Operating Officer Kris Mitchell, who may or may not have provided Attorney Cory Briggs with a version of the consultant’s memo that ended up as the heart of the now-retracted NBC7 story.
Were her inquiries into what she thought were $14.4 million unaccounted for in the 101 Ash deal blocked by the City Attorney's office?
What about the City Auditor’s report to the City Council which claims that Elliott declined multiple invitations to participate in a months-long audit of real estate transactions, only to criticize auditor Andy Hanau for not interviewing her before he issued his report?
Via the Union-Tribune:
Hanau’s report from July 22 found that former Mayor Kevin Faulconer and his staff withheld information and misstated some facts when it sought council approval in 2016 for the 20-year lease-to-own deal for the former Sempra Energy headquarters at 101 Ash St.
“The prior city administration diminished City Council’s oversight capabilities on major real estate acquisitions by failing to provide complete and accurate information,” the audit stated.
Auditors also found fault with other real estate investments made under the Faulconer administration, including a failed indoor skydiving facility the city bought for $7 million without the benefit of an assessment, and a repair yard that needed $8 million more in improvements than expected.
Elliott, who is now suing to try and void the Ash Street lease and an earlier deal for the nearby Civic Center Plaza, said the City Auditor’s Office wrongly blamed her for legal work performed by the City Attorney’s Office before she was elected in 2016.
The City Council has voted to accept a settlement on the primary lawsuits concerning these real estate deals. The City Attorney and host of others have said this is a bad deal, in part because it is not universal.
It should be noted there are civil and (possible) criminal claims not covered in this settlement.
Arguments for and against were published in the Union-Tribune. The paper solicited and published citizen opinions for their letters to the editor. The Voice of San Diego published an explainer on the deal. I’m sure there were other sources of information.
The bankruptcy of the argument against a settlement exists with an opinion article published in both the Presidio Sentinel and the OB Rag by Paul Krueger, claiming the Mayor and Council ignored promises of a full discussion. It’s a variation on the spurious arguments used by NIMBYs to oppose everything from bike lanes to social housing.
The mayor postponed the initial vote on a settlement by a month after receiving criticism about the details being obscure. I can guarantee that nothing in the way of a “full discussion” short of a majority vote against the settlement would have been enough.
The deal is done. And while it’s possible that something else in the future might be more favorable, it’s more likely that nothing will happen for up to a decade. Given the City Attorney’s track record on the Midway height initiative and the “no problem” inflated prices paid for motels to house homeless humans, it seems like a good choice in a reality where there are no great choices.
Gloria and the Council decided that something was better than nothing, and that it was worth the risk to use bond monies as a bridge until such time as further development could take place.
(No, that money does not just disappear; it can be repaid as part of future development. And, despite the insinuations of KUSI and San Diego’s naysayers, nobody will lose out on streets being repaved or parks being improved in the near future.)
The settlement calls for the city to spend about $132 million to buy itself out of the two city leases, which would end its legal fight with the landlord and lender behind the 101 Ash and Civic Center Plaza deals. That will cost about $46 million for Civic Center Plaza and $86 million for 101 Ash. Those sticker prices are based on the outstanding amounts the city owes on the leases, not the value of the buildings.
A prime assumption in this settlement is that 101 Ash would likely be more valuable to the city without the 19-story building currently topping it because renovation costs will surpass the value of the building.
In other words, this deal is about land. There is a huge hunk of central downtown that could include City Hall, the Ash Street property and the State of California building on Front Street that represents an opportunity to do something more than just putting up luxury condos.
We could get a new City Hall out of the deal. We could gain at least some affordable housing. None of this is possible without the real estate, which can be leveraged in ways that will provide funding for something much better than abandoned or nearly abandoned eyesores.
Of course, it’s entirely possible that nothing will happen. I’m willing to support a choice that involves possibilities over uncertainty. I acknowledge that there are aspects to this deal not addressed in this essay; none of them convinced me that “hurry up and wait” was the better option.
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Now, let me venture into the “Todd Gloria is a spineless-neocon-liberal-sellout” argument.
No shit, Sherlock. He was one of two choices in the 2020 general election. That’s what was on the ballot. He has broken no more or less promises than anybody else we could have voted for.
There was no 2020 candidate capable of passing any sort of detailed progressive sniff tests. Why should they even make more than a few gestures our way? No organized political entity exists to penalize them, unless you want to count a handful of social media haters.
San Diego’s City government is a reflection of the various influence groups. The cops want more overtime, so “we” send them after the homeless humans that too many of our housed humans feel threatened by.
If you want to get past the “Liberal candidates suck” brigade, you have to start at the bottom. A quick glance at the Democratic Party’s list of 2022 candidates, for example, shows that there are over 100 elected positions in the county without a general election candidate they’ll even consider.
Email me at: WritetoDougPorter@Gmail.com