The San Diego Housing Commission recommended Friday that the City Council approve a proposed settlement with Jim Neil, the real estate broker who the city sued, alleging that he helped the city purchase a Mission Valley hotel after investing in the parent company of the hotel’s owner.
But the recommendation came with reservations from two of the commissioners.
Namely, there are still concerns about how much the city paid for the property, and the appraisal process that led to that price being paid.
The Housing Commission purchased the property in 2020, to house formerly homeless residents who were then living in the San Diego Convention Center because of the pandemic. State and local officials recognized a need and an opportunity, believing they could cheaply acquire hotels that were floundering due to pandemic-related travel restrictions, and turn them into housing. With the help of state funds, San Diego bought a Mission Valley hotel for $67 million, and another similar property in Kearny Mesa.
The Housing Commission and the city later learned that Neil, working for Kidder Matthews, had bought 40,0000 shares in the parent company of the Mission Valley hotel’s owner after presenting the property to the city, but before negotiating the purchase, as Voice of San Diego revealed last year.
Last August, City Attorney Mara Elliott brought a lawsuit alleging 13 causes of action against Neil and Kidder Matthews, including fraud and a violation of a state law prohibiting officials from benefiting from contracts they help create.
Her office has now negotiated a settlement of that lawsuit. The Housing Commission’s board recommended approving it, and now the City Council – acting as the Housing Authority – will be asked to do the same.
Among the city’s allegations against Neil was that he and his company had their commissions on each transaction capped at $250,000 – even though the deals eventually netted them over $500,000 each. The settlement is structured to recoup the commission paid in excess of that cap, and to collect the money the city spent on the lawsuit.
“The settlement recovers the overpaid commissions and attorneys fees, and sends a strong message that public corruption will not be tolerated, and will be met with costly and embarrassing consequences,” said Meghan Ashley Wharton, the chief deputy city attorney.
The Housing Commission’s board then voted four to one, with one commissioner abstaining, to approve the settlement, but not until two commissioners expressed reservations with what the settlement didn’t address.
“I’m going to be very limited in what I say here, because I don’t want to stray in public discussion in an issue of litigation,” said Commissioner Ryan Clumpner. “The settlement has a very limited scope, and I have concerns about aspects outside the scope of this settlement that I think require further public explanation before this issue is resolved. And so, for that reason, I will not be voting to recommend approval of the settlement. I want to make it clear on the front end that that’s not because I see something wrong with what is in the settlement, but because I think the settlement is in a larger context that needs to be addressed.”
Board Chair Mitch Mitchell, who voted for the approval, was more circumspect.
“I will make the comment that I share some of the concerns of Mr. Clumpner,” he said. “I will express my aye vote, but I think my fellow commissioners understand the next steps for us on this matter.”
Reached after the meeting, Mitchell elaborated on his comments, saying his apprehensions related to the appraisal that the agency commissioned for the Mission Valley hotel to support the purchase.
The Commission purchased both hotels simultaneously – but the appraisals conducted for the two properties, by the same company, treated the two hotels very differently. The appraiser assessed the value of the Kearny Mesa hotel, in which Neil made no investment, as of the summer of 2020 when the purchase was underway, and after the pandemic had already cratered hotel values. But the appraisal relied on a backdated estimate of the Mission Valley hotel’s value, determining instead how much it was worth in early 2020, before the pandemic.
“I would say this: We want to make sure that we are never in a situation where there is a doubt about the process over a transaction, especially as it relates to the value of a property, and the appraisal that valued a property before a transaction is closed,” Mitchell said in an interview, about what he meant during the meeting.