The Morning Report
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Tuesday, Dec. 23, 2008 | JMI Realty, Padres owner John Moores’ development company, has terminated negotiations on the project to eliminate any threat of litigation stemming from the involvement of Nancy Graham, the former Centre City Development Corp. president who resigned in July.
While negotiating the development’s details, Graham had an undisclosed financial relationship with Lennar Corp., a nationwide developer and part owner of the 7.1 acres upon which Ballpark Village would be built. Graham received at least $125,000 last year from a Florida development deal she struck with Lennar. She never reported the income in conflict disclosure forms she filed annually and did not recuse herself from negotiations. She has since been charged with committing five misdemeanor conflict-of-interest and ethics violations.
CCDC, the city’s downtown redevelopment agency, has control over the design and specifications for what is built there. The agency has been in negotiations with JMI since mid-2007 about what form Ballpark Village will take. In 2005, the project was approved with a requirement to build offices. JMI subsequently decided to build a hotel and needed permission to make several changes because of that.
JMI spent the last year and a half working to secure CCDC approval to eliminate 300,000 square feet of office space and instead build a massive 1,929-room Marriott International hotel on the parking lot east of Petco. The progress from those negotiations will be tossed out, another casualty stemming from Graham’s undisclosed business relationships. The company still intends to move forward with the project.
Marriott withdrew from the project in August, citing the country’s economic turmoil. JMI planned to move forward without the hotel chain, but had concerns that the project could be invalidated in court because of Graham’s involvement, said Steve Peace, an advisor for JMI Realty. “This is residual damage of the whole Nancy Graham debacle,” he said.
State law prohibits public officials from negotiating contracts that can financially benefit themselves. Officials who violate the law can be charged criminally; their participation also allows any contract they’ve influenced to be invalidated. It’s not necessary to prove that fraud took place — contracts can be invalidated even if the official wasn’t purposely manipulating negotiations for their own gain.
CCDC initially tried to keep the development on track in the wake of Graham’s resignation. After a voiceofsandiego.org investigation revealed Graham’s undisclosed financial ties, CCDC hired an attorney to conduct an in-depth analysis of Graham’s participation with Ballpark Village to determine whether the agency and developer needed to start fresh.
The agency’s board decided in September to renegotiate only the deal points that Graham had influenced. Peace expressed frustration then that CCDC didn’t start anew. That prevented JMI from talking to potential lenders, he said.
“Rather than say ‘Start the process from scratch,’ [CCDC] tried to go and halfway do it,” Peace said. “That’s what I was objecting to. If you go forward and they haven’t done it right, then you’re at risk, your entitlement’s at risk.”
If a final deal was struck, anyone who opposed the project could sue over Graham’s involvement and potentially invalidate the agreement.
If JMI and CCDC rekindle negotiations about Ballpark Village in the future, JMI will have to provide more justification for eliminating office space. After investigating Graham’s involvement in the deal, CCDC analyzed downtown office space needs to see whether JMI was justified in eliminating the requirement — something Graham approved. The analysis showed that office space will be needed in the long-term, said Jeff Graham, a CCDC vice president. (He is not related to Nancy Graham.)
CCDC’s investigation determined that Nancy Graham had approved the elimination “without apparently serious negotiations.” The requirement was a key part of the development, the investigation found.
CCDC’s board will discuss the termination Jan. 7 and would have to formally act to end negotiations. That action — forced by JMI’s withdrawal, but endorsed by both sides — would acknowledge that CCDC didn’t go far enough in September to correct the situation created by its former president’s resignation.
“It wasn’t the clearest thing we’ve done at CCDC, that’s for sure,” said CCDC chairman Fred Maas. “This is a step in the right direction.”
After the board said negotiations should advance in September, CCDC and JMI had disagreed on one significant point about Ballpark Village: Whether JMI should indemnify CCDC — agree to pay its legal bills — if the agency were sued after finalizing an agreement. That became a sticking point for the redevelopment agency and the developers. In effect, CCDC attempted to lay the blame for Graham’s lack of disclosure on Lennar, saying the company should have reported its financial relationship with Graham.
The developers in turn tried to lay the blame for the Graham fallout on CCDC, her employer, and said the redevelopment outfit should have to pay its own legal bills if a lawsuit was filed.
Maas said CCDC would use the break in negotiations to revisit the project and determine “whether and where we start over.”
Building a tax-generating hotel downtown still makes sense, he said. But, “given the economic times we’re in, it’s a good time to take a deep breath and be deliberate and thorough.”