The city would pay $132 million to buy out the leases to the two downtown office buildings, saving taxpayers $15 million according to Gloria while avoiding costly litigation, but leaving the city responsible for needed renovations.
City Council President Sean Elo-Rivera and Councilmember Chris Cate, the lone Republican on the council, both announced support, though at lease one other councilmember and the City Attorney’s office urged rejection of the deal.
“Because there was no possibility of an ideal outcome from this civic debacle, our aim was to reach a lawful, fair settlement that limits the city’s liability and is in the best interests of taxpayers, which is what this proposed settlement is,” Gloria said.
“Nothing in the proposed settlement absolves anyone of any criminal wrongdoing,” he said. “Law enforcement can — and should — continue investigations into anyone who may hold criminal liability as part of this transaction and its aftermath. What this settlement does is put the needs of the city and its residents first.”
The two office towers were occupied by the city through lease-to-own transactions during Mayor Kevin Faulconer’s administration, which positioned the deal as a money saver by consolidating city offices. But 101 Ash, the former headquarters of Sempra, was soon found to be unusable with major renovations required because of asbestos.
The settlement would reimburse the city for $7.4 million in profit that Cisterra Development made selling 101 Ash, while allowing Cisterra to keep its $6.2 million in profits from the sale of Civic Center Plaza. In addition, lender CGA Capital would waive a prepayment penalty of $11.7 million.
Both companies praised the agreement, with Steve Black, chairman of Cisterra, saying, “We are pleased to have reached a settlement that opens the door for the city to redevelop the civic core of downtown San Diego.”
Gloria’s office said the original transactions were “tainted” by the involvement of real estate broker Jason Hughes, who allegedly made $9.5 million, and nothing in the settlement will preclude the city from pursuing legal action against him. Hughes’ attorney, Michael Attanasio, said that his client’s intention to receive compensation was disclosed at the time to numerous city officials and called the settlement proposal a “retreat” by the city.
“Jason Hughes is not a party to any settlements involving 101 Ash Street or Civic Center Plaza for one simple reason,” said Attanasio. “He had written approval to be compensated by the most senior real estate official in city government, Cybele Thompson, and he also disclosed his intent to be compensated on lease-to-own transactions to five other senior city officials, including the then-mayor, his chief-of-staff, the city’s CFO and deputy COO who oversaw the city’s real estate department.”
“Mr. Hughes did nothing wrong, and the City’s ongoing attempt to damage his reputation and to harm the San Diego company that he built should be seen for what it is — a cynical attempt to divert attention from the city’s own failings,” Attanasio added. “Mr. Hughes looks forward to his day in court and a fair review of all the facts.”
Elo-Rivera called the years-long controversy “a civic tragedy that should infuriate every San Diegan” while adding that he supports the settlement.
“Lying millionaires and an incompetent previous administration put our city in a terrible position that has cost San Diego years of progress, millions of dollars, and eroded public trust,” he said. “The proposed settlement, while not ideal, is the best business option available to the city.”
“It is time to close this chapter,” said Cate. “As we look to the future, the taxpayers deserve the certainty of putting this bad deal behind us.”
Councilmember Raul Campillo was also supportive. “I can say without any reservation, this settlement is in the best interest of the San Diego taxpayers,” according to a statement. “This settlement ensures these two valuable assets are totally under the control of the city, which provides certainty.”
But Councilmember Vivian Moreno said the city should have pursued litigation instead of settling.
“This settlement will be a dark cloud hanging over City Hall for decades to come,” she said. “I am fully confident that if the city went to trial, we would prevail and shield taxpayers from further losses, while at the same time finally uncovering the truth of what happened.”
The City Attorney’s office also rejected the deal, saying it “presents several significant disadvantages to the city and does not adequately protect the city’s legal and financial interests.” In particular, the office said the agreement precludes the city from pursuing further legal action.
The deal ensures the 800 city workers can remain in Civic Center Plaza without disruption and provides flexibility as to what to do with the five city blocks that comprise the Civic Center and 101 Ash.
But the city will be responsible for removing the asbestos from 101 Ash, work that could cost tens of millions of dollars.
The settlement discussions took place over 18 months with the guidance of retired Federal Magistrate Judge Jan Adler. The city was represented by outside legal counsel Dick Semerdjian of the Schwartz Semerdjian law firm.
The settlement will be discussed with the full City Council next Monday.
Updated at 7:10 p.m., Tuesday, June 21, 2022