{"id":1016,"date":"2020-09-07T11:06:45","date_gmt":"2020-09-07T18:06:45","guid":{"rendered":"http:\/\/www.growthesandiegoway.com\/blog\/entries\/?p=1016"},"modified":"2021-01-02T12:14:43","modified_gmt":"2021-01-02T20:14:43","slug":"following-the-money-on-101-ash-street","status":"publish","type":"post","link":"https:\/\/www.growthesandiegoway.com\/blog\/entries\/2020\/09\/07\/following-the-money-on-101-ash-street\/","title":{"rendered":"Following the money on 101 Ash Street and how the Faulconer administration let special interests fleece the public."},"content":{"rendered":"\n

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Incredible investigative work<\/span>1<\/sup><\/a><\/span> by Dorian Hargrove and the NBC7 investigative team laid out how the Mayor’s office and other City of San Diego officials allowed a questionable land deal to go through that generated significant profits for politically connected and influential special interests while causing taxpayers to waste hundreds of millions of dollars. The lack of scrutiny of the deal by the mayor’s office, members of the City Council and the city attorney’s office raises a lot of big questions. While NBC’s very detailed coverage (and the myriad other articles) make reference to big political donors<\/span>2<\/sup><\/a><\/span> who benefited, we thought it would be good to dig a little deeper on the players to show how entrenched corporate interests (and particularly the real estate and development industry) are in local politics. When campaigns are involved, obtaining influence via campaign donations, lobbying and fundraisers is a sure way to get elected officials to give corporate interests special treatment, sometimes at the expense of the public good. Now is as good a time as ever to consider measures to increase transparency and limit the influence of corporate interests on our elected officials.<\/em><\/p>\n\n\n\n

How it unfolded<\/h3>\n\n\n\n

If you have a solid understanding for what went down on 101 Ash Street you can scroll down to the section titled “Money and Politics.” For those who somehow haven’t been inundated with news about this debacle: in late 2016, the City of San Diego City Council was presented an offer by city staff to approve a $127 million lease-to-buy deal for a 21 story building formerly occupied by Sempra Energy, 101 Ash Street. According to an independent report commissioned by the City to look into the matter, the City overpaid for this building by at least $30 million and in a deal described as overwhelmingly favorable to the owners of the building (Doug Manchester, Mayor Faulconer’s largest donor, and Sandor Shapery). The contract was described by the City’s Office of the Independent Budget Analyst report as “horribly one-sided (in favor of the landlord) lease to purchase agreement that significantly constrains the City\u2019s options.”<\/span>3<\/sup><\/a><\/span> <\/p>\n\n\n\n

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This was particularly important because, the building turned out to have significant asbestos abatement issues that would have turned up in a standard inspection. It would be like overpaying for a house you are purchasing, not getting inspected and taking the seller’s word that the house does not have major problems. The previous tenant’s own consultants testified three years earlier that the building was “functionally obsolete” due to the need for tens of millions of dollars of work and the likelihood it would require asbestos abatement<\/span>4<\/sup><\/a><\/span>. When city staff presented their own report to the City Council, they did not disclose these issues (and were, apparently, unaware of them). They noted only that the building would need a “$10,000 power wash”<\/span>5<\/sup><\/a><\/span><\/strong>. Clearly, the city did not perform even the most minimal due diligence (such as a standard building inspection) prior to recommending the building’s purchase.<\/p>\n\n\n

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\n\t\t\tAccusations boil over in Ash Street deal following TV news report\t\t<\/div>\n\t\t\t\t\t\t
\n\t\t\tState Assemblyman Gloria, City Attorney Elliott deny NBC7 report, cite \u201cfabricated\u201d document\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\n\n\n

Good local reporting turned up documents and emails which showed that City staff knew that the owner’s desired selling price ($72 million) was well above the appraised value (originally $62 million). Chief Operating Officer, Ron Villa, acknowledged in an email uncovered by NBC7 Investigates<\/span>6<\/sup><\/a><\/span>, that the City Council would never approve it. And, City staff even got the appraiser to increase its valuation to $65 million.<\/p>\n\n\n\n

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In theory, City staff should be negotiating lower prices, not trying to get a higher appraisal. The lease-to-buy offer proposed to City Council was pitched as a good deal by City staff which valued it at $72 million. However, even the original appraisal, performed by the seller, was overinflated for a building in downtown San Diego. Recent, similar buildings were selling in the $45 to $55 million range, including the City’s recent purchase of Civic Center Plaza <\/span>7<\/sup><\/a><\/span>.<\/p>\n\n\n\n

Why would the City be essential negotiating against themselves for a bad deal? According to reporting by La Prensa San Diego<\/span>8<\/sup><\/a><\/span>, multiple staffers who attended a meeting<\/span>9<\/sup><\/a><\/span> with Mayor Faulconer reported that the mayor insisted on the more costly lease-to-own deal through third party Cisterra because he did not want Manchester’s name (his largest donor) being associated with such a large transaction. The Mayor’s office has yet to dispute that reporting. And further complicating matters, the City never ordered a legitimate inspection of the building which would have revealed many issues that have surfaced since. City Councilmember Todd Gloria met with City staff prior to his full public support of the purchase so he should have been aware of the nuances of this purchase. City staff either kept him in the dark or he largely agreed with their assessments that this would be good for the city despite the overvalued purchase price. <\/p>\n\n\n\n

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After the city took possession of the building, it turned out it was riddled with significant maintenance issues<\/span>10<\/sup><\/a><\/span><\/strong> including considerable asbestos problems that, according to an independent report<\/span>11<\/sup><\/a><\/span>, was not taken into account when workers began to work on the building. The building sits empty to this day, costing the city approximately $18,000 per day and is currently subject to numerous lawsuits<\/span>12<\/sup><\/a><\/span><\/strong> including one from 22 contractors who claim they were unnecessarily exposed to asbestos as well as a lawsuit filed by former City Attorney Mike Aguirre for waste of public funds and fraud<\/span>13<\/sup><\/a><\/span>. Voice of San Diego learned that the city decided to stop making payments to the owner in an attempt to rectify the issue<\/span>14<\/sup><\/a><\/span>. The scandal is widely considered an example of what should be the avoidable government waste of taxpayer money. <\/p>\n\n\n

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\n\t\t\tCity Failed to Conduct Basic Review of 101 Ash St. Property: Outside Review – NBC7 Investigates\t\t<\/div>\n\t\t\t\t\t\t
\n\t\t\tA forensic investigation into the city\u2019s purchase of a high rise at 101 Ash St. was commissioned amid numerous reports and legal claims that San Diego\u2026\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\n\n\n

The deal had been orchestrated by the city’s Real Estate Assets Department (READ), led by Cybele Thompson<\/a>, who was appointed by Faulconer in October 2014. Ms. Thompson was a former director at Cushman and Wakefield, a commercial real estate firm \/ brokerage with extensive experience in commercial deals downtown<\/span>15<\/sup><\/a><\/span>. Her team was instrumental in securing a similar lease-to-own deal for the Civic Center Plaza<\/span>16<\/sup><\/a><\/span> building which was criticized at the time by the Independent Budget Analyst<\/span>17<\/sup><\/a><\/span> (IBA) for being too hasty and not allowing sufficient review by Council. Here’s what the IBA said about the Civic Center deal:<\/p>\n\n\n\n

We remain concerned that Council has only had a short period to evaluate the proposed lease-to-own agreement for the Civic Center Plaza and King Chavez buildings, and has not had the opportunity to publicly request additional information or suggest potential amendments to the proposed agreement.<\/em><\/p><\/div>

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Andrea Tevlin<\/h2>Independent Budget Analyst, January 23, 2015 (link<\/a>)<\/small><\/div><\/div>\n\n\n\n

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That hasty deal ended up with a lawsuit filed by the previous owner of the building, which the City of San Diego settled for $1.2 million<\/span>18<\/sup><\/a><\/span>. One would think that hasty deals that resulted in expensive lawsuits would temper the City Council’s enthusiasm for unscrutinized deals, particularly those brokered by the same entity, Cisterra Development. <\/p>\n\n\n\n

According to NBC 7’s detailed timeline<\/span>19<\/sup><\/a><\/span>, the city’s interest in 101 Ash Street began in February of 2015 (shortly after the approval of the hasty Civic Center purchase). After SEMPRA declared it would seek a new building, owner Sandy Shapery entered into negotiations with the City of San Diego (led by Ms. Thompson with assistance from Jason Hughes, the CEO of Hughes Marino, a commercial developer who the previous mayor had relied on for real estate advice) to lease the building for office space. Ms. Thompson tried unsuccessfully to negotiate a lease with Mr. Shapery. Later that year, developer and hotelier, Doug Manchester, a major donor to the Republican party and to Mayor Faulconer’s campaigns<\/span>20<\/sup><\/a><\/span>, purchased a 49% stake in the building for $20 million<\/span>21<\/sup><\/a><\/span>. It is not entirely clear why Shapery, the owner, chose to bring Manchester into the deal. <\/p>\n\n\n\n

Less than a year later, Cisterra Development, who had been involved in the earlier Civic Center deal, was brought in and made an offer to buy the building from Shapery (and his minority partner, Doug Manchester) contingent on getting City Council approval for a subsequent lease-to-buy deal. In essence, Cisterra would be the middle man. Shapery later told NBC 7 Investigates that he believed that the Manchester\/Faulconer ties played a role in bringing in a third party (Cisterra) to the negotiations.<\/p>\n\n\n\n

\u201cManchester is Mayor Faulconer\u2019s largest contributor. My feeling is the city wanted a way around it, after all, how does it look to have the mayor enter into a major land deal with his largest contributor? I am not sure if it was ever spoken but I could see the mayor being reticent to do a deal, just the appearance of impropriety would be enough to make them want to avoid it.\u201d<\/em><\/p><\/div>

Sandor “Sandy” Shapery<\/h2>NBC 7 Investigates: City Officials Knew 101 Ash St. Was Riddled With Asbestos \u2014 So Why Were Hazards Ignored?<\/a><\/small><\/div><\/div>\n\n\n\n

Eighteen months later, upon closing with the city, Shapery writes Manchester a check for $25 million, netting “Papa” Doug a cool $5 million. For a more detailed dive into the history of the 101 Ash Street fiasco, check out Voice of San Diego’s excellent write up.\u001a<\/p>\n\n\n

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\n\t\t\tHow the City Came to Lease a Lemon – Voice of San Diego\t\t<\/div>\n\t\t\t\t\t\t
\n\t\t\tIt\u2019s likely the city never would have purchased 101 Ash St. if a developer hadn\u2019t come along to act as middleman. But that structure also laid the groundwork for a situation that is stunningly messy even in the canon of San Diego real estate history.\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\n\n\n

According to numerous media outlets, the deal was the second of two deals made hastily with Cisterra and with little<\/span>22<\/sup><\/a><\/span> scrutiny by city officials including the City Attorney, Mara Elliott, whose name was on<\/a> on the lease agreement that was signed shortly after she was elected to office. Ms. Elliott’s office, in July 2020, threatened<\/span>23<\/sup><\/a><\/span><\/strong> NBC reporter, Dorian Hargrove, whose coverage was partially based on leaked reports by outside consultants detailing the 101 Ash Street debacle. Ms. Elliott, currently running for reelection, rescinded the order after getting heat for it<\/span>24<\/sup><\/a><\/span> on social media.<\/p>\n\n\n\n

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Now, after sending a media request to city attorney about 101 Ash contract, they sent me a letter saying the office launching a criminal investigation. pic.twitter.com\/iKayAGNOwr<\/a><\/p>\u2014 Dorian Hargrove (@DorianHargrove) July 31, 2020<\/a><\/blockquote>