Wednesday, Sept. 24, 2008 | A Centre City Development Corp. attorney’s investigation into two former staffers’ possible conflicts of interest recommends starting anew on two key deal points on the massive Ballpark Village project proposed adjacent to Petco Park.

The attorney, James Lough, concludes that the underlying effort doesn’t need to be terminated as CCDC, the city’s downtown redevelopment agency, did Sept. 10 with a $409-million hotel and condominium project proposed at 7th Avenue and Market Street. Former CCDC President Nancy Graham had an ongoing relationship with an affiliate of 7th and Market’s developer. She participated in the developer’s selection and negotiation at the same time she was receiving money from its Florida affiliate.

Graham resigned her post July 24; she now faces three misdemeanor charges of failing to disclose the income and improperly influencing the project.

With 7th and Market, “the disqualifying interest of Ms. Graham persisted throughout that project,” Lough writes in a report to CCDC’s board dated Monday. “[T]he entire transaction was influenced by the conflict.”

That’s not true of Ballpark Village, Lough says. But if an ongoing Ballpark Village update is not renegotiated, Lough warns that Graham’s participation could subject it to legal challenges and “probable invalidation” even though no evidence exists that Graham gave its developers any special favors. Regardless, state and local law prohibited her involvement. Graham influenced negotiations about the project’s traffic impacts and its office-space requirements, the CCDC investigation found.

If CCDC decides to heed Lough’s recommendations when it meets Wednesday, it would deal another setback to downtown development plans in the wake of Graham’s resignation. The agency already killed the 7th and Market project, its proposed City Hall redevelopment has been delayed over another possible conflict and Lough’s investigation is still ongoing.

CCDC Chairman Fred Maas said he had not known what to expect from Lough’s report. Its findings, he said, are “quite reasonable.”

“I believe there are remedial measures that can be taken to assure the process was fair for the public and the agency,” Maas said, “and that we can take appropriate measures to keep it on track.”

Graham and former CCDC counsel Helen Peak both received money from Lennar Corp., one of Ballpark Village’s developers. Graham profited directly from a Florida development project she did with Lennar; Peak profited indirectly through a law partner’s representation of Lennar. Neither recused herself from discussions about the project proposed by JMI Realty, Padres owner John Moores’ development company.

Peak’s involvement with Ballpark Village predates Graham’s. In May 2005, when CCDC’s board originally approved the project, Peak stayed in the board room and didn’t recuse herself. State law requires officials with conflicts to recuse themselves and step out of the room if they have a conflict.

The investigation concludes that Peak does face “a legal problem under the Political Reform Act,” the state law that regulates public officials’ economic disclosure requirements.

While Peak may have violated the law, the investigation states, she didn’t unduly influence the project. She wasn’t involved in negotiations nor did she participate in the decision to approve Ballpark Village, Lough’s investigation report states. Other attorneys handled negotiations and the drafting of development agreements, while Peak provided general advice about corporate and government-related issues to CCDC’s board. Peak granted an interview to Lough, his report notes.

Peak resigned in late August after Lennar’s continued connection to Ballpark Village as a silent partner was identified. At the time, she said she was unaware of her firm’s earlier financial connection to Lennar and didn’t know the company was still involved with the project.

Graham has been described by Moores’ advisor Steve Peace as being extensively involved in the Ballpark Village project, though her participation was limited to the update of the concept approved in 2005. Lough’s report says a difference exists between Graham’s involvement in 7th and Market and Ballpark Village.

Graham oversaw the selection of 7th and Market’s developer, The Related Cos.; she did not with Ballpark Village, a massive development that will include 3 million square feet of mixed-use residential, retail, hotel and office uses.

However, Lough’s report states, “In both instances clear [state] conflict of interest violations exist which have tainted negotiations.”

Lough’s investigation provides a roadmap for CCDC to follow as it pushes forward with Ballpark Village, which would be built atop 7.1 acres bounded by Park Boulevard, K Street and Harbor Drive. Because the project is downtown, CCDC negotiates such things as the project’s specific uses and design on behalf of the city of San Diego. The City Council has the final say.

Lough recommends that CCDC renegotiate certain key points about the update and hire outside consultants to review the process. The update aimed to clear the way for Marriott International to build a 1,929-room hotel on the site east of Petco Park. Marriott has since withdrawn, citing the financial markets’ turmoil.

As part of that effort, CCDC tentatively agreed to eliminate a requirement that Ballpark Village include at least 300,000 square feet of office space. Lough says Graham was involved in that decision, which was made without serious negotiations. The decision, which hasn’t been finalized, should be reversed, Lough writes. CCDC could reconsider the issue only if an outside consultant first determines office space isn’t needed in the area, he says.

Graham had opposed the developers’ proposed traffic management plan. Lough says that plan should be reevaluated simply because of Graham’s participation in it. A proposed reduction in retail space should be also be reexamined. Other key points were not significantly influenced by Graham, his report states.

Peace has urged CCDC to revote on any parts of the deal Graham may have influenced. Asked about the investigation’s findings, Peace said: “We’re still trying to digest it and understand it. It’s an unusual document.”

Lough said CCDC’s board would satisfy necessary legal requirements by following his recommendations. But he also recommended that CCDC’s board request that Lennar and JMI Realty indemnify CCDC from any legal challenges. The developers should agree to pay CCDC’s legal bills in a suit, he wrote.

Lough suggests that more information may come out as investigations continue into Graham’s potential conflicts. He notes that City Attorney Mike Aguirre and “others” are investigating Graham. He doesn’t specify who those others are.

CCDC meets to discuss the project Wednesday at 1 p.m. at 401 B St., 4th floor.

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