City Council to consider Ash Street litigation behind closed doors for third time in three months

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Members of the San Diego City Council will meet behind closed doors Tuesday to discuss the series of disputes surrounding the city’s 2016 deal to lease the former Sempra Energy headquarters at 101 Ash St.

The 11 a.m. private discussion, the third in as many months, will follow a public session where the public will be invited to comment on the transaction that cost taxpayers at least $60 million to rent an unsafe building to occupy.

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Last month, council members spent four hours discussing three of the lawsuits that arose from the messy lease-to-own transaction, but announced no decision had been made.

Mayor Todd Gloria and City Attorney Mara Elliott have been working for months to try to resolve the cases out of court, although a majority of council members have yet to sign an agreement.

The building, which was valued at $67 million before lease approval, needs at least $115 million in repairs before it can be safely occupied, according to a consultant’s report completed in 2020 .

But it’s not clear that a settlement is on the table this coming week.

“The City Attorney’s Office will update the Mayor and City Council on the status of the litigation and seek direction,” the Public Diary reads.

The closed meeting comes as one of the attorneys suing the city, its landlord and the lender behind the disputed lease – former San Diego City Attorney Michael Aguirre – requests a public hearing to discuss of the dispute.

In a letter to council members Thursday, Aguirre said financing the Ash Street lease violates the state constitution by imposing costs on taxpayers without providing a direct benefit to the public.

“Our investigation has found that the promoters and financiers of the 101 Ash Street transaction misled city officials in a violation of the California constitution,” wrote Aguirre, who represents taxpayer John Gordon in a case against the city. .

Specifically, Aguirre said the owner, Cisterra Development, and its lender – CGA Capital Credit Lease-Backed Pass-Through Trust, Series 2017-CTL-1 – an entity created by CGA Capital of Maryland, have set up a “ tenant leasing” which required the city to make monthly payments even if the property was not usable.

“These are the CTL’s absolute lease terms that violate California’s constitutional limits of liability,” he wrote. “Under the constitution, lease payments must be contingent on the city receiving consideration of equal or equal value to the monthly payments of $534,726.50 for the CTL to be legal.”

Aguirre also raised questions about Jason Hughes, the real estate broker who previously advised former mayor Kevin Faulconer on what qualified as “voluntary.” In fact, Hughes had signed a private agreement with Cisterra in 2014 to share profits from future transactions.

Hughes, who has denied any wrongdoing, received $4.4 million for his role in the Ash Street deal and $5 million for work on a similar lease for nearby Civic Center Plaza in 2015.

The broker, who is not a defendant in the Gordon case but was charged with fraud in the city’s lawsuits, said in a deposition earlier this month that he was an ‘informal adviser’ to the mayor .

This characterization differs from what other documents show, Aguirre reminded council members in his Thursday letter.

“The $4.4 million for a ‘transactional consultant’ went to Jason Hughes,” wrote Aguirre, who served as the San Diego city attorney between 2004 and 2008.

“The January 2016 Cisterra Building Purchase Agreement identified Hughes’ company, Hughes Marino Inc., as the ‘Town Rental Representative’,” he added. “The $7,452,500 of ‘distributable proceeds’ went to Cisterra CEO Steve Black ($6,097,500) and fellow Cisterra executive Jason Wood ($1,355,000).”

Sources previously told the San Diego Union-Tribune that a settlement would likely result in the cancellation of the 2016 lease and the approval of a new agreement that would improve the building and restore the city’s lease payments that Faulconer suspended in 2020.

Aguirre said he is unwilling to settle the ratepayer lawsuit unless a new agreement requires the city to restart its lease payments only after the building can be occupied.

The three civil lawsuits being discussed on Tuesday are not the only Ash Street-related proceedings underway.

The city is also facing a series of lawsuits from employees and contractors who claim they were wrongfully exposed to asbestos during city renovations that were halted in early 2020 after a series of county violations. .

Perhaps more importantly, District Attorney Summer Stephan has opened a criminal investigation into the circumstances and financing of the Ash Street transaction.

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