101 Ash St. and Civic Center Plaza / Photos by Adriana Heldiz

As the city ironed out the terms of a deal in 2015 to lease the Civic Center Plaza long term, the city’s landlord privately discussed how to handle a city finance official’s scrutiny.

Emails obtained by Voice of San Diego reveal that, in January 2015, Cisterra Development principal Jason Wood told company chairman Steven Black that he worried the city’s debt management director might notice a “$1 million buffer” built into the company’s deal calculations if he gave her a detailed briefing. That was on top of an expected $10 million payoff he believed the city’s volunteer real estate adviser had already let other city officials know about.

Wood also suggested in the email sent just a few weeks before the City Council approved the deal that he could “rig a formula” in his spreadsheet to hide the difference.

In another email sent several minutes earlier, Wood urged that same adviser, Jason Hughes, to call a top city manager to encourage officials to focus more on whether the rents Cisterra offered were favorable than on financing details.

Hughes had long portrayed himself as a mere volunteer who was helping the city to get the best possible deal as it searched for buildings downtown to house its staff. His role, however, has taken on new meaning after the city took legal action to terminate a pair of leases at both Civic Center Plaza and 101 Ash St. Hughes and Cisterra were instrumental to both — and the company paid Hughes’ company millions for his work on the deals.

The emails are the latest revelation to come out of a city subpoena that also unearthed a previously undisclosed agreement between Hughes’ company and Cisterra pledging that Hughes Marino would receive 45 percent of the developer’s net profits if the Civic Center Plaza deal went through — and cover 45 percent of Cisterra’s upfront deal costs if it didn’t.

Hughes’ agreed-upon stake essentially made his company a partner in the deal, even though the agreement specifically stated otherwise and explained that he was providing consulting and advisory services.

According to a draft transcript of a deposition taken last week, which was also obtained by VOSD, Wood said Cisterra had at least initially planned that its chairman would also get a 45 percent share of the company’s Civic Center Plaza and 101 Ash St. profits while Wood himself expected a 10 percent share.

In the end, Cisterra paid Hughes just over $5 million for his work on the Civic Center Plaza deal about two years after the prominent real estate broker publicly said he would advise the city without getting paid his typical fees. The developer also reported walking away with an estimated $6.4 million.

That means the Civic Center Plaza deal netted an estimated $11.4 million payoff, more than $1 million higher than the $10 million Wood had initially projected and about $3.4 million more than the projected profit for Cisterra that the city’s real estate chief described to other city officials at the time.

In the 101 Ash St. deal, Hughes also walked away with $4.4 million while Cisterra made an estimated $7.45 million.

Attorneys for the city are now seeking to void both leases in court with the argument that Hughes violated a state law barring government officials — which courts have decided can include consultants — from engaging in an official capacity when their own financial interests are at stake. Hughes’ attorney has argued that law doesn’t apply to his client since he was an informal appointee.

Meanwhile, representatives for Hughes and Cisterra argue that city officials were informed of Cisterra’s expected profits and plans to pay Hughes and that the city’s legal actions following a series of asbestos violations that led to an evacuation of 101 Ash St. are misguided and politically motivated.

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In early 2015, the city and Cisterra were in the heat of lease negotiations for Civic Center Plaza, a building that the city had long occupied. The city’s lease had gone month to month and the city was unable to go to the bond market to fund an outright purchase. City officials worried they could be booted from the downtown high rise.

Hughes had an idea. A third party — ultimately, Cisterra — could buy Civic Center Plaza and the King-Chavez high school building, allow the city to pay rents that essentially amounted to a monthly mortgage and eventually own the building.

By 2015, the city and Cisterra were finalizing deal terms and deciding on the lender whom Cisterra would rely on to finance its upfront purchase and the city lease.

On Jan. 9, 2015, city debt management director Lakshmi Kommi emailed Wood and Black of Cisterra as well as Hughes and others, to say she planned to send Cisterra more questions about its lease-to-own proposal and financing plans later that day.

“Since this is a public project, we want to make sure we cross the t’s on, for example, rates, costs and fees, and flexibility for the city with the call option, in addition to the annual rent metric,” Kommi wrote.

Shortly thereafter, Wood emailed both Hughes and Black, flagging his concerns with Kommi’s continued questions.

First, he suggested Hughes call then-Deputy Chief Operating Officer Ron Villa, who oversaw the city’s real estate department.

Emails obtained by VOSD in response to a public records request show Hughes later that same day separately emailed both Villa and then-city real estate chief Cybele Thompson asking each to call him.

Less than 10 minutes after the email to Hughes, Wood then emailed Cisterra’s chairman.

That same afternoon, Thompson emailed Kommi, Villa and the city’s then-Chief Financial Officer Mary Lewis that Cisterra expected to net $2 million less than the $10 million Wood described to Black.

“If we were to complete the lease-to-own agreement, Cisterra would make a profit of $8 million,” Thompson informed her colleagues.

She went on to explain that the remainder of the difference between an outright purchase of Civic Center Plaza comprised “out-of-pocket-expenses and other assorted loan fees” and that Cisterra’s tax attorney had suggested the company would be hit with a 53 percent tax rate that would reduce its profit to less than $4 million.

The next day, a Saturday, Thompson emailed Kommi to say that “Jason” — most likely, Wood — had requested an in-person meeting on Monday “to get to the bottom of any questions” and that he had reminded her of the risk Cisterra was taking with the deal.

City calendars obtained by VOSD show Villa later requested a Monday meeting with Wood, Kommi, Thompson, Hughes and others.

The City Council took its first of two votes to approve the Civic Center Plaza lease two weeks later, bypassing its usual committee review process.

Cisterra spokesman Eric Rose wrote in an email to VOSD that the company had made clear to the city in both cases that the lease-to-own structure that required an upfront loan, building purchase and city lease negotiations would cost more than a simple purchase. In the case of 101 Ash St., for example, city officials knew that the lease would cost about $17 million more than a direct purchase.

Rose said Cisterra’s negotiations with the city focused mostly on the terms of the leases but that the company made clear it expected to profit on the deals and believed Hughes passed along details to top city officials.

“Cisterra understood then and understands today that Jason Hughes told the most senior members of the Faulconer administration both approximately how much money Cisterra anticipated making on the transaction and that he would seek to be paid by Cisterra for his investment banking-type of work at Civic Center Plaza and 101 Ash, transactions that by the city’s own calculations saved taxpayers tens of millions of dollars over the cost of renting comparable space in other buildings,” Rose wrote.

Hughes’ attorney Michael Attanasio told VOSD that Hughes understood the $10 million discussed in Wood’s January 2015 email to be Cisterra’s hoped-for excess loan proceeds if it locked in the interest rate it expected. Attanasio wrote in an email that Hughes had informed city officials, including the mayor and the city’s real estate director, of that target and his own plans to be paid. Attanasio has also produced a letter he says Thompson signed giving Hughes permission to be paid for his work on complex deals like the Civic Center Plaza lease.

Thompson has said she does not recall signing the letter and former Faulconer administration officials have maintained they had not known Cisterra paid Hughes until reporters reached out.

City Attorney Mara Elliott’s office has said it did not confirm the payments to Hughes until earlier this year. The payments — and Cisterra’s expected profit in both deals — were not disclosed publicly when the leases were presented to the City Council.

Attanasio argued city officials who knew of the expected payments could have passed along that information.

“All of these senior officials could have shared that information with staff, the city attorney, or the Council,” Attanasio wrote in an email. “That was not Jason’s job, any more than it was Jason’s job to fulfill the city’s disclosure obligations after he told these same officials that he would be paid on the transactions.”

Elliott’s office countered that Hughes’ disclosures were far from complete and that they do not absolve him of the alleged conflicts of interest.

“A proper disclosure of income is filed with the appropriate office, signed by the filer, and states the source, amount, and date of the income,” Elliott spokeswoman Hilary Nemchik wrote in an email to VOSD. “A city official being ‘told … that [Jason Hughes] would be paid on the transactions,’ even if true, does not meet those standards.”

Nemchik was less specific on how attorneys for the city view the Cisterra principal’s January 2015 emails to Hughes and the company’s chairman — and what they think they may mean for their efforts to void the leases with Cisterra.

“We don’t know the whole story, but this doesn’t look good for Cisterra,” Nemchik wrote.

The emails obtained by VOSD aren’t the only eyebrow-raising communications initiated by Cisterra in the weeks and months before the City Council approved the Civic Center Plaza deal.

In November 2014, as the city looked at a possible lease deal with Cisterra and inquired about potential terms, Wood emailed Kyle Gore of Maryland-based CGA Capital, which represents the lenders in the Civic Center and 101 Ash St. deals, with questions he said had come from the city.

Among Wood’s 10 questions in the email first reported by the Union-Tribune: Could CGA Capital supply an engagement letter, including “a provision where CGA pays pay a ‘financing finder’s fee’ to Hughes Marino (leave blank for amount)”?

“We need to have the guy who brought this deal to us paid through the financing and not direct by us,” Wood wrote in the Nov. 4, 2014, email.

“Will send tomorrow,” Gore replied.

In a statement last week, Gore wrote that his company later decided against such a payment – and that CGA Capital had no knowledge of Cisterra’s later payments to Hughes’ company or that those payments might have violated any laws. Lenders have previously argued that their lack of knowledge of the payments should protect them from harm as the city tries to quash the leases.

“CGA declined to make any such payment, as it had no (and has never had) any relationship with Hughes Marino or with Jason Hughes,” Gore wrote in an email to VOSD. “Consequently, CGA had no basis to pay any such fee to either Hughes Marino or to Jason Hughes.”

Rose, the Cisterra spokesman, reiterated in response to questions from VOSD that Cisterra understood that Hughes got the go-ahead from the city’s real estate director to seek compensation for his work on Civic Center Plaza and 101 Ash St.

Two months after the exchange between Wood and Gore, Hughes and Cisterra signed the services and fee agreement clarifying that he would be paid 45 percent of the developer’s net profits — rather than the finder’s fee Wood previously asked CGA Capital about.

The payments to Hughes didn’t show up on loan closing statements for the Civic Center Plaza or 101 Ash St. deals or on closing statements for the building purchases. Instead, Wood said in the deposition last week that Cisterra had pledged to share 45 percent of the excess loan proceeds it projected after accounting for other costs.

Lisa is a senior investigative reporter who digs into some of San Diego's biggest challenges including homelessness, city real estate debacles, the region's...

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