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The city’s former real estate chief recently testified under oath that she’s proud of her work on the controversial 101 Ash St. lease the city once projected would save it millions, but that the city ultimately botched renovations at the downtown high rise.
Cybele Thompson, who resigned in 2020 amid uproar over the skyscraper that has now sat empty for more than two years, said during an April 15 deposition the city “rushed” construction there. The pressure was on to move employees into the building by late 2019 after headlines decried the nearly $18,000 a day the city was spending to lease an empty building.
“There was a really big push on the mayor to get it finished on time, on budget, no excuses,” Thompson said, according to a draft transcript obtained by Voice of San Diego. “And so, it just appeared that people cut corners to make that happen.”
Thompson also revealed that the mayor caused the city to spend more money on the building because he was trying to avoid political problems and she departed the city with copies of hundreds of city documents out of concern she could become a scapegoat.
Attorneys for the city and a former city real estate adviser are now arguing over whether the city should be sanctioned in Superior Court for failing to turn over these and other records before key depositions.
City Attorney Mara Elliott’s office and a city spokeswoman declined to comment on Thompson’s deposition, but an attorney representing former Mayor Kevin Faulconer defended his oversight of the acquisition and renovation.
“The mayor always urged staff to bring all city projects in on time and on budget,” attorney Ed Chapin wrote in an email. “It goes without saying that safety of employees and that of the public is the top priority above all else.”
Whoever was at fault, the city ended up evacuating workers just a few weeks after moving them in. The failure and outrage about it led to investigations that have now exposed many other issues.
One was that the city had agreed to a lease structure that put it on the hook for building fixes that one estimate put at $115 million. Later came the revelation that the city’s landlord at 101 Ash and nearby Civic Center Plaza paid the city’s purportedly volunteer real estate adviser, Jason Hughes, $9.4 million for his work on the two lease deals. The latter spawned two city legal actions accusing Hughes of state conflict-of-interest violations. The city suits also attempt to void both leases.
Hughes has alleged that Thompson signed a 2014 letter granting him permission to be paid for his work on more complex lease deals like the Civic Center and 101 Ash lease-to-own arrangements.
Thompson was only asked whether the signature on the letter appeared to be hers in the April 15 deposition conducted by an attorney representing landlord Cisterra Development.
“It appears to be,” she said.
Thompson previously told Voice she didn’t recall signing the letter and that she didn’t know Hughes was paid for his work on the two deals.
Cisterra attorney Michael Riney did not ask Thompson to share more recollections about the letter or whether she was aware of payouts to Hughes. Thompson is set to be deposed again on Thursday by Riney and others including Hughes’ attorney.
Thompson declined to comment when reached by Voice.
Thompson also provided her behind-the-scenes view of how the city decided to pursue a lease-to-own deal for the high rise at 101 Ash St. Faulconer chose to pay more for the building to avoid political criticism, she said.
Faulconer hired Thompson to lead the city’s real estate department in 2014. At the time, the city faced the prospect of losing Civic Center Plaza, a building steps away from City Hall housing more than a dozen city departments. The owners were anxious to sell the building but legal concerns kept the city from going to the bond market to buy the building it had rented for years. Its owners weren’t willing to wait.
That’s when Hughes had an idea. Cisterra could secure a loan to finance the purchase of the building and simultaneously execute a purchase and a lease with the city. Then the city would pay what amounted to monthly mortgage payments for 20 years and come away owning the building.
Thompson helped sell the arrangement to the City Council in early 2015. It was later revealed that Hughes had a secret contract with Cisterra guaranteeing him 45 percent of its net profit if the deal got done or forcing him to pay 45 percent of Cisterra’s upfront costs if it didn’t.
Thompson then pitched a similar deal to the City Council to acquire 101 Ash St. in fall 2016. Cisterra and Hughes also assumed their earlier arrangement for the Ash deal.
City officials knew when they consummated both deals the lease-to-own structure would be more costly than a straight purchase but argued the deals would save tens of millions compared with leasing space in multiple other facilities.
City leaders decided in 2015 that a lease-to-own deal was the only way for the city to keep Civic Center Plaza.
More than a year later, they were exploring the possibility of a straight purchase of 101 Ash. Cisterra secured a purchase contract with owners Sandy Shapery and Doug Manchester. The city initially wanted to pursue bond financing and take over Cisterra’s position in the purchase agreement. A lease-to-own deal was also on the table.
Thompson, former Chief Operating Officer Scott Chadwick, former CFO Mary Lewis and then-Deputy Chief Operating Officer Ron Villa said Lewis argued in favor of a direct purchase that cost the city millions less at a Sept. 6, 2016 meeting.
All testified under oath that Faulconer objected.
Thompson recalled Lewis pushing for the city to pursue bond financing and raising concerns that Cisterra hadn’t provided a detailed breakdown of the fees it would pass along to the city, a detail a city-hired investigator would later flag.
Thompson said Faulconer erupted over the prospect of buying a building from real estate magnate Doug Manchester, a top Faulconer donor considered a political lightning rod.
“(Faulconer) said something along the lines of, you know, ‘Mary, I know you’re no political genius, but imagine the optics of me writing a check to Doug Manchester for this building. You know, he’s the biggest Trump-loving, gay-hating, womanizing’ — he went on kind of a tirade about Doug,” Thompson said. “‘So how could I possibly be seen writing a check to him?’”
Lewis and Villa also recounted the exchange, though with fewer specifics.
Faulconer, his former chief of staff and his former spokesman previously told Voice that the city made the call to go with a lease-to-own deal based on a recommendation from staff.
“The notion that Manchester drove the decision to go with a lease rather than a purchase is inaccurate,” Chapin, Faulconer’s attorney, wrote in a Monday email to Voice.
Chapin said the mayor was advised by city officials and attorneys that the purchase option was legally problematic and came with “timing issues.” He wrote that Cisterra also wasn’t willing to allow a direct purchase.
Yet emails and documents obtained by Voice show a draft report to City Councilmembers that included both the purchase and lease-to-own options was circulated among city employees the week before the mayor’s office meeting.
And the day after the meeting, Villa wrote an email to other city officials clarifying that “plans had changed” and that the city would no longer pursue a direct purchase.
“This change was made after purchase negotiations broke down and we had to revert to our second option,” Villa wrote in the Sept. 7, 2016, email.
In his December deposition, Faulconer said under oath he did not recall the September 2016 meeting or discussing Manchester at the meeting, but remembered at one meeting discussing whether Manchester’s ownership stake would “be problematic for the City Council because of some of his political views and activities.”
Manchester has said he had agreed to sell his share of 101 Ash to Shapery before the sale to Cisterra and was not a party in Shapery’s transaction with the developer. He told Voice on Friday that the city should have gone with the direct purchase.
“It’s ridiculous the mayor didn’t have the foresight to know that it was the best option for him,” Manchester said. The City Council in fall 2016 voted to approve a lease-to-own deal with Thompson’s testimony that the building needed minimal upgrades. There was no public mention that Hughes would receive $4.4 million for his work on the deal.
The city got the keys to 101 Ash in January 2017. Like many buildings constructed in the 1960s, the high rise had asbestos. Thompson said the city walked in knowing it had asbestos. The city did not predict that it would become a problem.
The initial plan was to renovate the building’s bottom two and top three floors. By then, Thompson said contractor Gensler had started speaking to city departments to make space plans. Thompson recalled the company later telling the city that its departments needed more space.
“Gensler planned each department, and at the end of that six-month period, said, ‘Hey, guys, if you’re actually going to fit all of these people into that building, we’re going to have to remodel every single floor,” Thompson said. “And it’s going to be substantially more expensive than the $5 million that we had estimated.”
Adding to the challenge, Thompson said city Public Works chief James Nagelvoort said his department didn’t have the expertise to oversee upgrades at the building before the city acquired it. The city soon put out a request for proposals to seek a project manager.
Hughes’ company Hughes Marino submitted a bid and was later selected to potentially oversee projects at multiple city buildings.
But contract negotiations stalled, and Thompson said city executives decided they couldn’t wait. Nagelvoort’s team would need to take on the job.
Later, after the city changed payment approval processes, Thompson said Nagelvoort argued it would be more cost effective for the city’s public works department to oversee work at 101 Ash.
The problem, Thompson said, was that the department and contractors it worked with were ill-equipped to “manage the entire project from beginning to end.”
Thompson was eventually forced to return to the City Council to get approval for a more substantial, 19-floor renovation project expected to cost about $30 million.
Then came the asbestos and other issues. 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.
That’s when the 101 Ash scandal became a dumpster fire.
Thompson resigned less than a week after the release of a devastating review of the city’s acquisition that emphasized the city’s failure to seek an independent appraisal and assessment of the building’s true condition before the City Council voted to move forward with a 20-year lease-to-own deal.
In her deposition, Thompson said that the city did not have a budget to fund due diligence on the building, thus forcing it have Cisterra bill the city for those efforts.
Thompson said she left City Hall with hundreds of internal city documents out of fear her actions could be mispresented by “pretty much everyone involved.”
Hughes’ attorneys are now arguing that the city should be sanctioned by the San Diego Superior Court for its failure to release most of those and other documents for months.
A spokeswoman for Elliott’s office argued that it “has made a good faith effort to locate every record the defendants have requested.”
The city produced another 300,000 pages of documents earlier this month and expected to release another 16,000 pages ahead of a Friday hearing on the dispute.
Hughes’ attorney Michael Attanasio wrote in court filing last week that he welcomed those releases, but they did not change the city’s previous failures.
“As demonstrated by the city’s belated production, those documents clearly existed from the outset of the case, they are relevant, and they were withheld,” Attanasio wrote.
Meanwhile, Cisterra and the lenders behind the 101 Ash and Civic Center Plaza deals are still hoping for a settlement with the city. They’ve quietly negotiated with the city for months in hopes of reaching one.
The City Council was set to receive updates and give direction on litigation tied to the two deals behind closed doors on Tuesday.
Riney, the Cisterra attorney, cheered Thompson’s revelations ahead of that briefing and seized on the argument that the city – rather than its landlord or others – were responsible for the boatload of issues at 101 Ash.
“As the city’s former director of Real Estate Assets Cybele Thompson agreed under oath, there was ‘nothing wrong with the deal, the only problem is the remodel,’” Riney wrote in an email.