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The city five years ago got the keys to 101 Ash St. and planned on hundreds of city employees working there. But the building has sat empty even though the city has spent more than $60 million on it — roughly the same as its annual library budget.
The dumpster fire that is 101 Ash reached new heights in 2021. The building acquisition already marred by county asbestos violations, unexpected costs, multiple scandals and a flurry of legal claims spawned a criminal investigation – and a new city legal strategy to try to move past the debacle.
The criminal probe came after the bombshell revelation that purported volunteer Jason Hughes, who years ago stepped up to help the city address its real estate woes, pocketed $9.4 million for his work on two city leases, including just over $5 million for the Civic Center Plaza lease and $4.4 million for the Ash deal. It was also revealed that he had a contract with the landlord of both buildings: They agreed to give him 45 percent of their profits if the city made the first deal and he agreed to pay 45 percent of their losses if the city didn’t. The arrangement was created for the Civic Center deal and later applied to the Ash deal.
That’s what we learned about this scandal in 2021: We learned how much people made off the 101 Ash lease and that the city and criminal investigators believe the deal may have been the result of illegal actions. The city hopes that it can prove there was an illegal conflict of interest so that it can unwind the Ash lease and another at Civic Center Plaza, a building steps away from City Hall that houses more than a dozen city departments.
Those are big hopes. Experts and lawyers involved have very different takes on whether those theories are sound and that gamble is a good one. Indeed, Hughes’ attorney has argued former Mayor Kevin Faulconer and top officials signed off on payments to Hughes though they have denied they were aware of them.
It’s uncertain whether we’ll get more clarity on those and many other questions surrounding the debacle in 2022. What is certain is that we’ll see more drama and potentially, more taxpayer money lost.
Citing ongoing lawsuits, a spokeswoman for Mayor Todd Gloria last week declined to answer questions about whether the city believes 101 Ash could be habitable and whether it has sought analyses beyond an initial review that estimated the high rise might require more than $100 million in repairs.
Gloria himself has also been mostly mum – at least publicly – on 101 Ash this year despite the building becoming a key fixture in the 2020 mayor’s race. This spring, he and the city’s chief operating officer toured the building donning hazardous materials suits.
Gloria, who voted to approve the city lease as a city councilman, seems to be letting the litigation process guide the city’s next steps.
For now, the city’s 101 Ash and Civic Center Plaza actions aiming to void the city leases aren’t set to go to trial until January 2023 – though there’s the possibility that settlements could be reached before then.
To understand what we learned this year and the city’s gamble on how it hopes to resolve all these matters, let’s go back to how it got here.
How It Started
In January 2017, the city consummated a deal to essentially make mortgage payments on 101 Ash over 20 years and own the former Sempra Energy headquarters at the end of the lease. The city deal was with middle-man landlord Cisterra Development, which agreed to buy the building from then-owners Sandy Shapery and hotel magnate Doug Manchester, and then immediately lease it to the city. The lease-to-own structure left the city – rather than its landlord – liable for any building repairs.
At the time, city officials deemed 101 Ash’s condition excellent based on cursory analyses later determined to be far from sufficient. They considered the 19-story building a solution to the city’s concerns about rising rents in other spaces it leased. The city initially etched out plans to move hundreds of city employees in within months of the acquisition after completing a five-floor renovation project bankrolled with a $5 million tenant improvement allowance from the landlord.
By April 2018, city workers still hadn’t moved in and the Union-Tribune seized on the nearly $18,000 a day the city was spending to lease the empty building. Within months, city officials were forced to return to the City Council to get approval for a more substantial, 19-floor renovation project expected to cost about $30 million.
In 2019, the county issued a series of asbestos violations as contractors proceeded with renovations and contractors flagged concerns with building systems. In late 2019, the city began moving employees in – only to evacuate them in January 2020 after the county declared people shouldn’t be working in the building because the work in the building had continued to create asbestos dangers.
Months later, a city-commissioned analysis found 101 Ash St. could need as much as $115 million in repairs. At the same meeting where that report was presented, an attorney the city hired to dig into the deal also explained that while Cisterra paid $72.4 million for 101 Ash St., the true purchase price was nearly $20 million more. The outside investigator said Cisterra baked a $5 million tenant improvement loan into the city’s lease payments rather than provide it as an allowance. Worse, the investigator had identified about $14.5 million he couldn’t fully account for.
That raised big questions: Where did the money go and how did the city end up with such a lemon?
In 2021, we learned where that money went and much more.
The 2021 Bombshells
When then-Mayor Bob Filner appointed Hughes as a special assistant to advise on the city’s downtown office needs in 2013, he commended the real estate pro for agreeing to work “without compensation from any party.”
But we learned this year that Hughes did eventually get paid, an arrangement that has led city attorneys and criminal investigators to allege a violation of Government Code Section 1090. The state law bars government officials from having financial interests in contracts they broker in their official capacities and can be applied to contractors and consultants like Hughes if they give advice that city officials follow.
We also learned that Hughes didn’t have a formal contract with the city. But he did sign an agreement with the city’s eventual 101 Ash landlord that essentially made his company Hughes Marino a partner on the other side of the city’s earlier Civic Center Plaza deal.
The agreement stated that Hughes Marino would receive 45 percent of Cisterra’s net profits from the Civic Center Plaza deal for assisting the city’s landlord if it went forward – and that Hughes’ company would cover 45 percent of Cisterra’s upfront costs if things fell apart. At the time, the city had not yet secured the Civic Center Plaza lease.
Hughes would eventually receive just over $5 million from Cisterra for his work on the Civic Center Plaza deal in 2015 and $4.4 million for his work on 101 Ash St. in 2017, payments that Hughes and Cisterra didn’t confirm publicly until earlier this year as both deals faced increased scrutiny. Cisterra later told Voice of San Diego that it at least initially walked away with $6.4 million in the Civic Center deal and $7.45 million in the Ash deal.
Two weeks after VOSD revealed the formal arrangements between Hughes and Cisterra, investigators from the county District Attorney’s Office executed search warrants at Hughes’ company, home and Cisterra’s offices. A search warrant affidavit released a couple weeks later showed investigators theorized that Hughes and Cisterra steered the city into lease-to-own arrangements that were more costly for the city and more financially beneficial for them.
Representatives for Hughes and Cisterra have rejected that. They have also said their clients are cooperating with investigators and expect to be cleared.
“We are confident that a review of all documents and statements gathered by the District Attorney will show Cisterra and its employees acted appropriately and complied with all criminal and civil laws,” Cisterra spokesman Eric Rose wrote in a statement.
Hughes’ attorney Michael Attanasio has argued that Hughes’ onetime informal city position did not make him subject to the conflict-of-interest law. He has also continued to reiterate that Hughes got top city officials’ approval to seek compensation, including at a private meeting that included Faulconer, and was never told he needed to file formal disclosures.
“Despite this specific knowledge of Jason’s intent at the highest levels of the city, nobody at the city ever required or even asked Jason to make further disclosures of any kind,” Attanasio wrote in email.
Spokespeople for Elliott’s office have argued otherwise, including that the communications and meeting that Hughes’ attorney has described constituted less than full disclosure under state law.
“The city and the public did not know Hughes was paid, when Hughes was paid, by whom Hughes was paid, or what he did to earn those payments until the city compelled production of business documents between the seller and Hughes through litigation,” Elliott spokeswoman Leslie Wolf Branscomb wrote in an email.
Even if it is established that Hughes informed the mayor of his intent to seek compensation, he doesn’t claim to have informed anyone of the contract he had with the city’s landlords. And he doesn’t claim to have disclosed it to the public using formal disclosure documents.
And even if he had, it might not have been enough. Former California Fair Political Practices Commission chair Ann Ravel and Gary Schons, a former senior assistant attorney general who later spent years advising governments on issues including 1090, have said that disclosure alone wouldn’t cure the conflict both said appeared on display in the agreement between Hughes and Cisterra – and that the disclosure Hughes’ attorney has described was insufficient. Both also believe the city should have had Hughes file formal disclosures.
“His disclosure was not full disclosure, and his relationships were not full disclosure,” Ravel said earlier this year. “That’s the issue.”
Ravel and Schons also told VOSD that the formal agreement between Hughes and the city’s landlord seems to bolster the conflict-of-interest allegations. They say it describes in black and white Hughes’ interest in the city’s real estate dealings.
But to win a criminal conviction, prosecutors must show Hughes and Cisterra knew there was a conflict and proceeded with the payments anyway. That’s a higher threshold to cross.
How It’s Going
As the criminal probe continues, the city and attorneys for Hughes and Cisterra are also continuing to tangle in multiple court battles, including over the civil conflict-of-interest allegations the city has pursued to void the leases.
To brace for a continued fight in civil courts, the City Council recently approved an up to $500,000 contract with the fifth law firm it has signed on to assist with the legal drama surrounding 101 Ash St.
An assistant city attorney told City Councilmembers last week that reinforcements were needed to help the city face off against 11 law firms and about 30 attorneys representing parties including contractors who worked on the 101 Ash building and the lenders behind the two city leases.
“The contract with the law firm is necessary and prudent because the city needs to have adequate legal representation on these high-profile lawsuits in which hundreds of millions of dollars are at stake,” Assistant City Attorney Jim McNeill said.
Indeed, attorneys on all sides of the 101 Ash saga are angling.
Lawyers for the lenders behind the two city leases who supplied upfront cash to Cisterra to facilitate the building purchases and arrangements with the city, for example, claim lenders weren’t aware of Cisterra’s payments to Hughes and that their lack of knowledge of the alleged violation of anti-corruption law protects them – and the leases the city is trying to void. It’s an argument they emphasized as they – for a time – sought to evict the city from Civic Center Plaza after the city halted rent payments. (The city has since agreed to resume payments matching the monthly rent charges it committed to in 2015, an arrangement that led lenders to agree to dismiss its eviction action.)
There’s also a continuing taxpayer lawsuit alleging constitutional issues with city spending on the Ash lease and another case recently dismissed in federal court that could re-emerge in Superior Court surrounding how Elliott’s office treated an NBC 7 journalist who reported on a footnote in an outside 101 Ash investigation that the city attorney argues was fabricated. The latter is yet another scandal within a scandal – and speculation continues over the footnote itself and who was involved with the leak and potential fabrication of a document meant for city eyes only.
The bottom line: The 101 Ash debacle is far from over. Expect more drama and surprises in 2022.