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Thursday, Sept. 11, 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 voiceofsandiego.org 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. That testimony amounted to a “silver bullet” in establishing her conflict of interest, Lough said.
Graham did not report the income on annual forms she submitted under penalty of perjury and did not recuse herself from negotiations at CCDC. Public officials are prohibited from influencing government decisions that can benefit themselves, their spouses or business partners. Violating those laws can result in fines as high as $5,000 per incident as well as misdemeanor or felony criminal charges.
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 could exist 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 companies. 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 had “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 project and said the company would seek reimbursement from CCDC, a step that would likely require a lawsuit. The project clearly appears headed for court: Strauss repeatedly warned CCDC’s board that they’d face “consequences” if they terminated the project; Maas acknowledged the possible litigation as well.
The 7th and Market development was nearly completed this summer, but had been on hold since Graham resigned. The City Council was scheduled to consider approving a development agreement with The Related Cos. as early as in July. That would have been the project’s final bureaucratic hurdle at the city before it could have been built.
If any future development occurs at 7th and Market, CCDC and any interested developers will have to start anew. Maas said in an interview that developing the city-owned land still makes sense, but should only be examined once the agency has completed an investigation of all of its projects proposed during Graham’s tenure as well as a potential overhaul of its conflict-of-interest code.
The skyscraper is the only CCDC project to be discarded since Graham’s resignation, though others face scrutiny. The agency has launched a review of every project proposed during Graham’s almost three-year tenure to determine whether her undisclosed income tainted other developments. The review, expected to take two to three months, has focused attention on the massive Ballpark Village development, proposed near Petco Park.
Graham participated in negotiations about an amendment to the project, which was originally approved in 2005. Graham acknowledged receiving income in 2007 from Lennar Corp., which along with The Related Group was her business partner on the Florida development deal that paid her almost $3 million. She then participated extensively in the amendment’s negotiations.
Lennar, a nationwide builder, is part owner of the underlying 7.1 acres for the mixed-use Ballpark Village project. The attention focused on that deal has led to the resignation of CCDC attorney Helen Holmes Peak, who resigned Aug. 29 after she acknowledged participating in discussions about Ballpark Village despite receiving money from Lennar through her law firm.
Peak disclosed the income in 2007 but said she didn’t know Lennar was still involved with the project. She didn’t disclose the income in 2005, when she did know Lennar was involved, saying she wasn’t aware one of her partners represented the homebuilder then.