Docs: City Officials Knew ‘Volunteer’ Real Estate Guru Wanted Compensation

Former city officials maintain they didn’t know their purportedly volunteer real estate adviser was paid $9.4 million for his work on two city leases, but this much is clear: Several knew he wanted to be paid. 

Deposition transcripts and other documents obtained by Voice of San Diego reveal that prominent downtown real estate broker Jason Hughes – who in 2013 agreed to advise the city for free – wasn’t shy about telling city officials and the city’s landlord that he wanted to be paid just over a year after announcing his volunteer role. Hughes later quietly inked a contract with soon-to-be city landlord Cisterra Development that promised him 45 percent of net profits if a city deal to acquire downtown high-rise Civic Center Plaza went forward and put him on the hook for 45 percent of the developer’s upfront costs if it didn’t. 

But while he told some city officials he wanted to be paid, documents show he also specifically asked the city’s landlord not to include his payment in a financial breakdown of the transaction they were preparing to share with the city in fall 2014.  

The revelation last year that Hughes was paid for his work on that transaction and the later 101 Ash St. lease led the city to accuse Hughes of violating a state conflict-of-interest law and to file legal actions seeking to void both deals. 

Hughes’ attorney has argued that city officials could have clarified Hughes’ plans after he told them he wanted to get paid. He also says city officials could have ordered Hughes to fill out financial disclosures or to sign a contract formalizing his role – and whether he could be paid.  

None of that happened and former city officials including ex-Mayor Kevin Faulconer are adamant that they didn’t know that the city’s landlord paid Hughes.  

A blistering city auditor’s report last year faulted Faulconer’s office for failing to establish a formal contract with Hughes, to document the scope of his work or to determine whether he needed to fill out financial disclosures. 

Faulconer’s then-chief of staff Stephen Puetz said in a February deposition that he thought Hughes was operating under the unpaid arrangement set under ex-Mayor Bob Filner and didn’t order Hughes to file disclosures because he thought Hughes “wasn’t making money.” 

Yet Puetz and other former city officials have acknowledged under oath in recent months that they did know Hughes wanted to make money. 

… 

Filner appointed Hughes as a special assistant to advise him on the city’s downtown real estate needs in April 2013 and wrote in a letter that he’d do so “without compensation from any party.”  

There were no other city documents establishing the terms of Hughes’ work with the city.  

More than a year later, Filner was out and officials were panicking that the city might lose Civic Center Plaza, a building that has long housed more than a dozen city departments. Hughes had an idea to have a developer buy the building and the city pay what amounted to monthly mortgage payments to own the building after 20 years. He eventually got paid for that idea. 

Cisterra chairman Steven Black in a March deposition said Hughes called him in summer 2014 to discuss whether the developer could secure office space for the city by replicating a financing structure it used to help Sempra Energy get a new headquarters. 

Black recalled Hughes saying he “expected to be compensated” early in their discussions. 

Hughes had clued the city into his idea by early August 2014 when he emailed former city real estate official Brad Bennett. 

“This route is really like an investment banking type transaction – so I would need a separate way to get compensated – but regardless, I have some good ideas that I will start working on,” Hughes wrote on Aug. 4, 2014. 

Two days later, Cisterra principal Jason Wood emailed Hughes with the subject line “commissions on city lease deal” describing costs tied to a 30-year lease and a hypothetical broker’s fee totaling about $11 million.  

The conversations continued. 

Early on Oct. 21, 2014, Hughes and Wood exchanged text messages about lining up financing details with an estimate of at least a $10 million profit.  

“I’ll need to be paid an investment banking fee upon closing,” Hughes texted. “Will you, (Black) or (an investor group facilitating the deal) be able to pay my $4.5 mil upfront?” 

Wood said they could. 

“How long until I can get the email bullet points?” Hughes replied. “And make sure to leave any fee reference off it.” 

He later clarified that Wood should “show the $4.5 mill as ‘investment banking fee’ and don’t label me as a recipient.” 

“Wasn’t going to mention the $10 million at all,” Wood replied. 

“Even better,” Hughes replied. 

Hughes’ fees never showed up in any breakdowns provided to the city. 

Hughes and Black said during their depositions that they agreed Hughes should be the one to inform city officials of his fee.  

By this point, Hughes said, he had “already explained it to the mayor” and his chief of staff. He claimed both “gave me explicit approval” and that he wanted to explain it to other city officials. 

Still, Hughes has acknowledged he never told city officials exactly how much he was paid. 

Black recalled Hughes sharing that he had spoken to Faulconer about the expected $10 million profit on the deal that Wood and Hughes discussed in their October 2014 text messages. (The city’s then-real estate director later included a smaller, $8 million profit estimate in an email to other city staff. The deal ultimately netted Cisterra and Hughes a steeper payoff than those estimates.) 

That October evening, Hughes emailed then-city Chief Financial Officer Mary Lewis and then-Deputy Chief Operating Officer Ron Villa with an overview of a lease-to-own structure that left out those details but mentioned he “would seek compensation” for his work on a Civic Center deal. 

Lewis forwarded the email to the city’s debt management director, saying they should discuss it the next day and replied to Hughes saying she’d take a closer look. Lewis didn’t directly address what he wrote about getting paid. 

In a March deposition, Lewis said she dismissed Hughes’ comment in the 2014 email. 

“My reaction to this e-mail was this was fanciful and didn’t involve the city,” Lewis said. 

In a separate deposition, Villa said he didn’t recall reading the email or inquiring about it later. He said he likely wouldn’t have followed up since the city wouldn’t be paying Hughes – and his understanding was that Hughes was a volunteer. 

“I would have dismissed it, you know, if the city wasn’t on the hook, then it was a moot point to me,” Villa said. 

A month later, the city concluded that a court challenge would keep it from pursuing bond financing before a Dec. 31 deadline that the owners of Civic Center Plaza had set for a sale. The owners weren’t willing to wait. The city needed to go with the lease-to-own option. 

Around the same time, in November 2014, Hughes requested a brief meeting with Faulconer. Calendar records show the mayor, Puetz and Hughes met for five minutes on Nov. 19, 2014. 

Hughes claims that Faulconer and Puetz reviewed and approved a letter confirming Hughes could be paid for his work on complex city lease deals like the Civic Center Plaza one. 

Later, Hughes has said, then-city real estate chief Cybele Thompson signed the letter stating Hughes could “seek to be paid customary compensation from any other parties in the transaction.” 

Hughes has produced text messages with Puetz that evening where he seemed to ask the chief of staff to intervene after Thompson said she wanted to have the city attorney review an unspecified “hard copy.” 

“I’ll talk to her again,” Puetz replied. 

In a recent deposition, Thompson acknowledged that the signature on the letter appeared to be hers. She previously told Voice she didn’t recall signing the letter and that she didn’t know Hughes was paid. 

Puetz said in a February deposition he didn’t recall the letter and previously told Voice he didn’t recall telling Thompson she needed to sign it. 

The City Council took its first vote to approve the Civic Center Plaza deal in January 2015 – nearly two weeks after Hughes and Black executed a services and fee contract documenting the developer’s arrangement with Hughes. The City Attorney’s Office has said the city didn’t know about the contract. 

Hughes was ultimately paid just over $5 million. 

At some point after the deal was consummated, Villa said Thompson told him Hughes “had notified her that he was going to try and get compensation from the deal.” 

“The way it was presented to me was more in line with, ‘you’re not going to believe this,’ or something to that effect,” Villa said. 

“I think my response was something to the effect of, ‘good luck’,” Villa recalled later. “That was it.” 

Hughes’ attorney Michael Attanasio said Thompson confirmed in a Thursday deposition that she talked to Villa after Hughes told her he wanted to seek payment.  

“Ms. Thompson explained that she was seeking to provide this information directly to her supervisor Mr. Villa because she thought it was important for him to know,” Attanasio said. 

Two other sources with knowledge of the situation also confirmed Thompson’s testimony. 

In his April deposition, Hughes said Villa, Faulconer and Puetz verbally followed up with him about his payout. 

“Ron Villa asked me if I was paid, if I worked out something with Cisterra,” Hughes said. “The mayor asked me, the chief of staff asked me.” 

The attorney representing the city who deposed Hughes didn’t press for more details. 

But Faulconer, Villa and Puetz said under oath in their own depositions that they didn’t know Hughes was paid. All said they understood Hughes to be a volunteer. 

Then-city Chief Operating Officer Scott Chadwick said in a November deposition that he had the same understanding and “at no time was I made aware that they were being paid.” 

Had he gotten a heads up, Chadwick said he would have contacted the City Attorney’s Office or called for a request for proposals, a process the city requires for contracts over $25,000. 

After the city got the Civic Center deal done, conversations picked up about another building, 101 Ash. 

In 2015, then-101 Ash St. owner Sandy Shapery engaged with Hughes and city officials about the downtown high rise steps away from City Hall. 

In one April 2015 exchange, Thompson asked Hughes if he was preparing a counteroffer to one of Shapery’s offers. In response, he made a joke emphasizing that his city work wasn’t paying the bills. 

Hughes replied that he’d been “tied up on money-making endeavors” and later jokingly questioned whether he could be enrolled in the city’s deferred retirement option plan because he was doing so much work for the city.  

Puetz recalled that email exchange in his February deposition and said Hughes had complained to him and others that he was doing significant work for the city without getting paid.  

“I was aware, and he made it clear, throughout various times in our administration, that he was doing a lot of work and wanted to be compensated,” Puetz said. “You know, there was complaints to me, to Chadwick, to people, and complaints and offhand comments about all the work that he was doing for free.”  

Later, Hughes and the city discussed multiple offers with Shapery and real estate magnate Doug Manchester, a political lightning rod who purchased a 49 percent share of the building. A direct deal never came together. 

Cisterra came back into the picture in 2016, ultimately reaching a deal with the 101 Ash St. owners and doing another lease-to-own deal with the city.  

Cisterra later paid Hughes $4.4 million, applying the terms of their 2015 contract to the Ash transaction. 

The lease-to-own structure became a flashpoint after it became clear that it put the city on the hook for a slew of building issues at 101 Ash.  

The City Council voted to approve a lease-to-own deal with Cisterra in late 2016. Within a few years, the situation devolved – unleashing an avalanche of issues. The city in early 2020 evacuated workers just a few weeks after moving them into the building following a series of asbestos violations and construction issues. That failure and outrage about the now vacant building led to investigations that exposed other issues, including the payments to Hughes. 

Attanasio has argued that Hughes did all he could to notify city officials that he wanted to seek compensation and that none of them took action to clarify the situation. 

“Once Mr. Hughes made his intention perfectly clear, it was the obligation of those officials to comply with all disclosure rules and any other legal requirements applicable to Mr. Hughes, up to and including city attorney review,” Attanasio wrote in an email.  “Those same city officials had another option as well. They could have simply told Mr. Hughes that he could not be paid on city transactions as long as he had any role with the city.” 

City Attorney’s Office spokeswoman Leslie Wolf Branscomb said that these arguments ultimately won’t help Hughes win in court. After all, the spokeswoman wrote, the city didn’t learn until last year that Hughes was paid by the city landlord it thought Hughes was negotiating with on the city’s behalf. 

“Hughes’ approach to his defense – that he expressed a desire to be paid to anyone who would listen – is puzzling given the archaic and straightforward language in (the state conflict-of-interest law),” Wolf Branscomb wrote. “The city simply needs to show that Hughes, a city official under the law, had a financial interest in a contract he negotiated on the city’s behalf.”