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This post has been updated.
Lenders behind the city’s Civic Center Plaza lease are officially trying to evict the city and hundreds of employees from their downtown office space.
Wilmington Trust, a national investment management firm that serves as a trustee to investors who supplied upfront cash for the Civic Center Plaza lease, on Tuesday filed an unlawful detainer lawsuit, a legal action to evict a tenant, in San Diego Superior Court weeks after the city failed to make its July rent payment.
It’s not immediately clear what the filing could mean for more than a dozen city departments and about 850 employees who work in the building. The 18-story building now houses the city treasurer’s office as well as departments including real estate, information technology and economic development. City Attorney Mara Elliott and other city attorneys also work at Civic Center Plaza.
The lawsuit follows a July 14 letter from an attorney representing investors in the city’s lease demanding that the city hand over $313,118 in rent and additional default fees within 10 days or risk eviction.
Earlier this month, city Chief Operating Officer Jay Goldstone notified the city’s landlord Cisterra Development and representatives for its lenders that the city would stop making rent payments as it pursued legal actions to try to void its Civic Center Plaza and 101 Ash St. leases. Elliott and other attorneys for the city allege that the landlord’s more than $9 million in payments to real estate consultant Jason Hughes for his work on the two deals amounted to a conflict of interest since state law bars city officials and even contractors from benefiting from deals they broker in their official capacity.
Hilary Nemchik, an Elliott spokeswoman, wrote in a Tuesday statement that the eviction lawsuit is a distraction that won’t resolve the city’s issues with the two leases.
“San Diegans should be disappointed that Wilmington Trust is playing the victim rather than addressing the wrongs done to taxpayers,” Nemchik wrote in an email to Voice of San Diego. “We will do everything we can to make sure public services go on uninterrupted throughout court proceedings.”
Kyle Gore, managing director of Maryland-based CGA Capital, which has previously acted on behalf of investors in the city deals, declined to comment on the Tuesday filing but had previously hinted at legal action.
In a statement last week, Gore wrote that lenders would “vigorously defend against the city’s baseless attempt to void the Civic Center Plaza and 101 Ash Street leases while simultaneously seeking to occupy Civic Center Plaza rent free and pocketing rent from its sub-tenants.”
The subtenant Gore referenced is King-Chavez Community High School, a charter school that now has about six years remaining in its sublease with the city.
Attorney Craig Ganz, who represents the lenders, has previously clarified that lenders won’t try to force the school to move out. Only the city was named in the lenders’ Tuesday filing.
The city also stopped paying rent at 101 Ash St. last year, arguing that the city shouldn’t send monthly checks for a building it has been unable to use since it rushed to move out employees in January 2020 after a series of asbestos violations. Attorneys for the city followed up with a lawsuit essentially asking the Superior Court to bless that decision.
Now the lenders who made the city’s Civic Center Plaza lease possible seek to take back possession of the 18-story building.
After the city is physically served with the lenders’ lawsuit and summons, it will have five days to respond per state law.
Sherman Oaks-based attorney Artin Gholian, who for years represented commercial and residential landlords in eviction cases, said that the city must then file an answer to the lawsuit or a motion to dismiss the suit or strike portions of it.
If either side requests a trial, state law typically requires one be held within 20 days.
But if the city requests a jury trial, Gholian said that timeline could be pushed out further, buying the city and employees who now work in Civic Center Plaza more time.
Gholian said he would expect it to take months for the case to be resolved, particularly as COVID-related delays continue to dog superior courts.
“Litigation is slow,” Gholian said. “Courts are slow.”
San Diego-based attorney Rachael Callahan, who represents both commercial and residential landlords in eviction cases, said unlawful detainer cases were typically resolved in 45 to 60 days in the county before the pandemic.
The process had slowed for a time, but Callahan said the delays have lessened more recently. Still, she expected the city will find ways to drag out its eviction case, including perhaps proposing to consolidate the unlawful detainer case with its recently filed legal actions.
That change and other legal strategies could buy the city far more time.
“(An eviction) won’t happen overnight,” Callahan said. “Even if they are told by a judge they have to leave, there will be legal challenges available.”
Whatever happens, lenders are unlikely to be as patient as the city. The legal wrangling by lenders rather than the city’s landlord reflects the unique structure of the 20-year 101 Ash and Civic Center leases. Instead of the city buying the buildings outright, lenders put up tens of millions of dollars in cash to facilitate Cisterra’s upfront purchases of the two buildings and its lease deals with the city. The lenders made those investments with the promise of city rent payments over two decades – and then learned on July 1 that the city would no longer be paying rent on either building.
The city rushed to execute the lease-to-own deal with developer Cisterra for the building in 2015 after its building lease went month to month and a legal challenge stalled efforts to seek bond financing to buy the building itself.
It’s unclear how the city’s move to allow more employees to work from home during the pandemic might lessen the burden on the city if it ends up losing the high rise that for years has been a crucial piece of its real estate portfolio. Goldstone previously told VOSD that the city has been evaluating its office needs in recent months and exploring additional options to allow telecommuting for employees who work at Civic Center Plaza and other city facilities.
Spokespeople for Mayor Todd Gloria and Goldstone on Tuesday declined to comment on the city’s next steps or options it may be considering.
Update: This post has been updated to include perspective from San Diego attorney Rachael Callahan.