SAN DIEGO (CNS) - Mayor Todd Gloria Monday announced a potential settlement with Cisterra Development and lender CGA over the 101 Ash Street and Civic Center Plaza real estate deals that would transfer ownership of the properties to the city.
The settlement -- besides transferring ownership of the former Sempra Energy headquarters at 101 Ash Street and the Civic Center Plaza, housing more than 800 city employees -- would refund the city $7.4 million in profits Cisterra made in its lease-to-own deal on the 101 Ash property, while allowing the company to keep its $6.2 million in profits from a similar deal with Civic Center Plaza.
In the deal, CGA will waive the "yield maintenance fee" of $11.7 million. That fee is a kind of prepayment fee that borrowers pay to lenders to compensate for the loss of interest resulting from the prepayment of a loan or the calling in of a bond.
The San Diego City Council will discuss and vote on the proposed settlement next Monday.
"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.
RELATED COVERAGE City stops paying lease on 101 Ash Street building Criminal probe underway in 101 Ash debacle City Attorney sues to void 101 Ash Street deal Audit finds failures in shuttered 101 Ash Street deal Corruption concerns in controversial Ash Street deal Audit critical of City of San Diego's building acquisitionsGloria and Jay Goldstone, the city's chief operating officer, said that while some might like to pursue litigation against Cisterra and CGA "to the bitter end," the gamble of paying millions of dollars over the course of the next 5 to 10 years while the case and its appeals make their way through the courts -- with the potential to lose and be on the hook for many millions more -- was not a palatable one.
"I continue to feel deceived by the information provided to use at that time," Gloria said, referring to his membership on the council in 2016, when the deal was approved. "Ultimately, I do not believe [further litigation with Cisterra] is in the best interests of taxpayers."
Additionally under the proposed settlement, the city will be responsible for all remediation fees to get the building habitable.
When employees began moving into the 101 Ash building, it was found that the property proved unsafe for human occupation due to asbestos. Initially, city staff during Mayor Kevin Faulconer's administration presented the building as needing $5 million worth of repairs and retrofitting. The bill has already exceeded $26 million by 2020, and an independent review conducted after the deal was inked estimates $115 million more will be necessary -- $136 million more than staff presented to council.
The city will be entitled to all insurance or third-party reimbursement related to the botched remediation of 101 Ash and "will be able to determine the best course of action to garner the most value from building," a city statement reads.
City Council President Sean Elo-Rivera expressed anger over the deals.
"The 101 Ash saga has been a civic tragedy that should infuriate every San Diegan," he said. "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."
City Councilman Chris Cate said it was "time to close this chapter" and give taxpayers the "certainty of putting this bad deal behind us."
"Cisterra and our lender have participated with the city in confidential mediation discussions with a goal of resolving this complicated matter without the further uncertainty, expense and delay of ongoing litigation," said Steve Black, chairman of Cisterra Development. "We are pleased to have reached a settlement that opens the door for the city to redevelop the civic core of downtown San Diego.
"The city was a positive counterparty in those discussions and the resolution announced today is the result of all parties working hard to find a fair compromise, which we believe has been achieved," he said.
Nothing in the settlement would preclude the city and district attorneys from pursuing criminal charges against Jason Hughes -- the volunteer who facilitated the sale while allegedly pocketing nearly $9.5 million -- his real estate brokerage Hughes Marino and other contractors.
The City Attorney's Office alleges in its ongoing litigation that Hughes represented himself to be a "special volunteer for real estate services" who was negotiating the building deals on the city's behalf for free "out of a sense of civic duty."
The city alleges it learned of $4.4 million Hughes was paid by Cisterra as part of the 101 Ash Street transaction through its litigation over the lease-to-own deal for the downtown high-rise, which was evacuated due to asbestos violations shortly after city workers were moved into the building. The skyscraper remains vacant, and questions and accusations abound among elected officials and the general public over how the deal went through amid apparent structural issues.
Hughes allegedly also received an unreported sum of around $5 million from Cisterra for negotiating the Civic Center Plaza deal.
"Law enforcement can -- and should -- continue investigations into anyone who may hold criminal liability as part of this transaction and its aftermath," Gloria said. "What this settlement does is put the needs of the city and its residents first."
Faulconer, in responding to an audit in 2020 which found San Diego had failed to follow best practices and undergo due diligence before purchasing and leasing buildings since 2015, pushed back on the claims.
"Protecting taxpayer dollars should always be the priority of city officials," he told City News Service. "Having fought to establish the Office of the City Auditor, I am a strong supporter of increased oversight, and it's clear that these matters call for additional independent review as recommended by the auditor.
"All the real estate transactions in question were reviewed by all branches of city government prior to their enactment and the adoption of these recommendations will further ensure accountability and transparency."
Gloria said his office would take accountability.
"The political move would be to push this off to the next administration," he said. "We're here because people put personal needs ahead of the people's. We will not do that."
UPDATE: June 22, 2022
Hughes says in a court document that he had written approval from the city’s chief real estate official to accept compensation.
In a written statement to ABC 10News, Hughes’ attorney said Hughes “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. Mr. Hughes looks forward to his day in court and a fair review of all the facts.”
Hughes’ attorney also said Hughes is not a party to any settlements involving 101 Ash Street or Civic Center Plaza.
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