Wednesday, Sept. 10, 2008 | The Centre City Development Corp.’s board voted unanimously Wednesday to terminate a proposed $409-million, 41-story downtown hotel and condominium project, citing the need to restore public trust in the beleaguered redevelopment agency.

The decision is the latest blow to downtown redevelopment efforts in the wake of former CCDC President Nancy Graham’s July 24 resignation. It comes less than a month after revealed that Graham received money from a company affiliated with the project’s developer at the same time she negotiated a development agreement for the high-rise. The project was supposed to be built on city-owned land and benefit from an $8.7 million city subsidy for including affordable housing.

James Lough, an outside attorney CCDC hired to review Graham’s undisclosed financial interests, said Graham had a clear conflict and simply by participating had tainted a process that is supposed to be fair and impartial.

He told CCDC’s board that he did not believe Graham had steered the deal to the eventual winning developer, but said her involvement in negotiations was still improper. “I don’t see any problems with how selection was done,” Lough said, “but the mere participation itself creates a problem.”

Graham’s lacking financial disclosures presented several potential violations of state law, Lough said, and will likely draw the attention of District Attorney Bonnie Dumanis. City Attorney Mike Aguirre is also investigating the case.

Before moving to San Diego in 2005, Graham worked as a developer in Florida, where she had a business relationship with The Related Group, a large Florida development company. Together, they built a mixed-use condominium project, a partnership that Graham estimated had paid her almost $3 million — including a $125,000 payment that came in mid-2007 as she participated in negotiations about 7th and Market.

While Graham publicly denied any financial relationship, she acknowledged the income in a deposition given under oath last summer. She did not report the income on annual conflict-of-interest disclosure forms she submitted to the city and did not recuse herself from negotiations. Public officials are prohibited from influencing government decisions that can benefit themselves, their spouses or business partners.

CCDC’s board weighed whether to terminate the project or simply suspend it. But several board members said allowing the current project to advance would be improper because of Graham’s involvement.

“There was a fundamental betrayal of trust,” said Fred Maas, CCDC’s chairman. “And I don’t know what we can do to remedy that.”

“I am heartsick that we’re in this situation,” said Janice Brown, a CCDC board member. “But I don’t feel that we can in good conscience move forward … without incurring more problems, and that is undermining the trust of this entity completely with the public.”

Steven Strauss, an attorney for The Related Cos., said no conflict existed because of the way The Related Group and The Related Cos. are connected. The Related Group, based in Florida, is partly owned but not controlled by The Related Cos., a New York-based company working on the 7th and Market project.

Lough, the CCDC outside counsel, said the companies were interlocked, pointing to a state law with a broad prohibition against public officials influencing decisions that can benefit their business partners’ related entities. The law says a conflict exists in any case where two companies have a close working relationship.

Even if no conflict existed, CCDC attorney Murray Kane said the agency’s board has “full unfettered discretion” to do whatever it wants with the 7th and Market project.

Strauss estimated that The Related Cos. spent $2 million on the 7th and Market project and said the company would seek reimbursement from CCDC, a step that would likely require a lawsuit.

If any future development occurs at 7th and Market, CCDC and any interested developers would have to start anew. CCDC first requested developers to submit proposals to build in May 2006, a process that culminated with The Related Cos.’ selection in March 2007.

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