The Related Cos., the company that had been developing the $409-million, 41-story hotel and condo project at 7th Avenue and Market Street downtown, has sued the Centre City Development Corp. for killing the effort.

CCDC’s board voted to cancel the project in September after a voiceofsandiego.org investigation revealed that CCDC’s former president, Nancy Graham, had an ongoing financial relationship with Related’s Florida affiliate while she negotiated the 7th and Market project.

As a private businesswoman in Florida, Graham worked to build a condominium project with The Related Group, which is partly owned by The Related Cos., a New York-based company. She received income from The Related Group within months of CCDC choosing The Related Cos. as the preferred developer of 7th and Market.

In a complaint filed Dec. 9, The Related Cos.’ attorneys say they are seeking $3.8 million from CCDC for acting in bad faith and hastily tossing out the project.

CCDC’s board killed the project in September saying that it had an absolute right to decide the future of the city-owned land at 7th and Market. The 2007 agreement between CCDC and The Related Cos. committed both parties to acting in good faith — cooperating with each other. But it also specifically said CCDC offered no guarantee that the development would be approved.

The attorneys’ lawsuit attempts to cast doubt on the relationship between The Related Group and The Related Cos. — and whether Graham’s financial ties to The Related Group constituted a conflict that would have prohibited her from negotiating with The Related Cos. That’s the reason CCDC cited for killing the project.

According to state law, public officials have an economic interest in a business if it directly pays them money. They’re also prohibited from influencing a decision that could benefit a connected company.

State law lays out a series of tests to determine whether two companies are connected. Two of the following have to be met:

  • One company has a controlling interest in the other.
  • The companies have shared management or control. They must have a regular and close working relationship.
  • A controlling owner of one company is a controlling owner of the other.

The Related lawsuit says none of those criteria are met in this case. The lawsuit does not acknowledge that the companies have had a lengthy relationship, undertaking several major development projects together.

The Wall Street Journal described the companies’ relationship this way in an October story:

In 1979, [Jorge Pérez, the now-owner of The Related Group] and Stephen Ross, chairman and chief executive of New York’s Related Cos., co-founded Related Group of Florida, when both developers focused on low-income housing. The two men have shifted to high-end projects and separated their companies. Mr. Ross still owns about 20% of the Florida firm, Mr. Pérez says, and Mr. Pérez holds stakes in various projects led by Mr. Ross.

CCDC has 30 days to file a response; it has not yet done so.

ROB DAVIS

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