Executive sworn testimony reveals that San Diego council was not made aware of the Ash St.

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Five years ago next month, as San Diego elected officials were considering leasing Sempra Energy’s former headquarters at 101 Ash St., then-city councilor Todd Gloria asked top real estate expert of town why they weren’t buying the property.

The then director of real estate assets, Cybele Thompson, said the timing of the transaction made a direct purchase almost impossible. She then invited Jason Wood of Cisterra Development, the future owner of the city under the complicated deal, for further explanation.

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“Cisterra can maintain the rent that is presented to you today, if approved today, despite rising interest rates, and this structure gives the city a win-win advantage,” Wood told the advice, reading a prepared statement as he answered Gloria’s question.

“Everything is set for this to become a reality, and any delay or attempted renegotiation could seriously jeopardize this transaction and the savings the city would achieve,” he said.

This explanation satisfied Gloria, who quickly brought forward a motion to approve the contract.

But according to hours of sworn testimony that Cisterra’s executive gave in a deposition on September 14, Wood did not reveal many facts about the Ash Street transaction when he addressed city council in 2016.

Some of the details Wood admitted under oath:

  • Jason Hughes, who introduced himself as a volunteer city councilor, was under contract with Cisterra and could earn millions of dollars once the lease was signed.
  • Wood and his boss, Cisterra founder Steven Black, both understood that Hughes was working with Cisterra while advising the city, but Wood said he saw no conflict of interest with the arrangement.
  • Wood earned $ 1.3 million upon closing; her boss raised more than four times that amount.
  • Cisterra’s lender refused to pay Hughes a “search commission” directly for his role in the Ash Street affair and a similar lease for the nearby Civic Center Plaza; as a result, the payments were incorporated into the loans and masked from the public record.
  • Wood, a graduate of the Wharton School at the University of Pennsylvania, said he was unsure whether the city might struggle to sell $ 72 million in bonds to buy a building valued at $ 67 million.

Numerous disclosures have already been reported by The San Diego Union-Tribune and other news outlets, as information has leaked in recent months through claims, leaks and legal proceedings under California Public Records. Act.
But Wood’s deposition is the first sworn testimony – evidence presented under penalty of perjury – from a critical insider in a deal that has so far cost taxpayers at least $ 60 million for a skyscraper. of 19 floors which cannot be safely occupied.

When San Diego City Council passed Gloria’s motion to approve the capital lease, council members were told the city would be relocating hundreds of employees to the office tower by July 2017.

Instead, the building remains vacant due to asbestos and a host of other issues.

The city is now facing dozens of legal claims alleging exposure to asbestos and other charges, and little progress has been made towards the $ 115 million in repairs and upgrades the building needs before it can go. ‘he can be busy.

On the advice of the lawyer

The initial transcript of Wood’s day-long deposition, held in a West Broadway boardroom with at least 10 attorneys in attendance, shows just how controversial the Ash Street lease has become – and how much is stake.

Wood was filed by attorneys representing John Gordon, a San Diego resident who over a year ago sued the city, Cisterra and others, alleging the acquisition was illegal because it put the city in debt without public vote.

The lawsuit calls for tens of millions of dollars to be returned to the city’s treasury.

Wood’s deposition was led by Michael Aguirre, the former City of San Diego lawyer who now represents Gordon. He was repeatedly interrupted by objections from the defendants’ lawyers and gunfire between various lawyers.

For example, Wood declined to say in the deposition whether he discussed Cisterra’s relationship with Hughes with a lawyer.

“He is not going to answer a question as to whether he consulted a lawyer on a particular subject, Michael,” Cisterra’s lawyer, Michael Riney, told Aguirre. “Why don’t you ask a question that doesn’t call for lawyer-client privileged communications? You know better than that. “

Aguirre tried again: “Did you consult with legal counsel regarding the payment to Mr. Hughes of the amount for which you testified? He asked the Cisterra executive.

The wood has not moved. “On the advice of the lawyer, I will not respond,” he replied.

Hughes, a well-known tenant representative in the commercial leasing field, became a real estate consultant for former Mayor Bob Filner and maintained a similar relationship when Kevin Faulconer was elected mayor in 2014.

The broker and the two mayors told the public that Hughes was a volunteer, but Wood made it clear in the deposition that this was not true.

He said Hughes was to receive 45% of the estimated “excess loan funds” – a deal that amounted to $ 4.4 million when the Ash Street deal was struck.

Meanwhile, Black has agreed to share the actual profits with Wood on an 82-18 basis, Wood said. This allowed the founder of Cisterra to raise nearly $ 6 million while he received $ 1.3 million, Wood added.

The Ash Street deal was virtually identical to a 2015 deal between the city and Cisterra under a capital lease for the Civic Center Plaza, which grossed Hughes over $ 5 million, Wood said.

“It was his idea,” said the witness, referring to Hughes.

Hughes, who received just over $ 9.4 million for the two leases he helped the city negotiate, said through his lawyer that he repeatedly told officials of the city ​​that he expected to be paid for his work in advising the city on its real estate needs.

“I have already made it clear in correspondence to the city that any alternative deal would require me to play a few different roles due to the complexity and time involved,” Hughes wrote to Thompson in 2014. “As a result, I would seek out a few different roles. to be paid the usual compensation of any other party to the transaction.

Unbeknownst to Thompson or other city officials, Hughes had signed a deal with Cisterra two days earlier preventing him from revealing he was consulting Cisterra on real estate transactions, the Voice of San Diego reported this month. -this.

In total, Cisterra borrowed $ 92 million to close the Ash Street deal. Much of the proceeds went to former owners, San Diego investors Sandor Shapery and Douglas Manchester, but millions of dollars also covered loan fees, insurance, legal fees and other expenses, Wood said. .

In total, Cisterra and Hughes received at least $ 11.2 million, according to Wood’s testimony.

Upon closing of the transaction on January 3, 2017, Cisterra sold the $ 535,000 in monthly rents to its lender, CGA Capital. The contract called for the lender to collect $ 128 million from the city over the next 20 years.

Manchester had bought 49% of the property in 2015 for $ 20 million. The building was first valued at $ 62 million in 2016, but Wood said the valuation was raised to $ 67.1 million after discussing the valuation with the independent appraiser.

“I’m not comfortable with the word ‘persuade’,” Wood said when asked if he had tried to influence the assessment. “We wanted to talk to him about some of his assumptions to make sure he was well informed.”

Aguirre tried to get Wood to discuss the viability of the deal from a taxpayer’s perspective.

“You think investors would buy $ 72 million worth of bonds, worth bonds, for a property that was only worth $ 67 million?” Asked Aguirre.

“I don’t know,” Wood said, after another objection from his lawyer.

“Intentionally deceived”

City attorney Mara Elliott sued Cisterra and the others almost a year ago, two months after Gordon filed his complaint, which resulted in Wood’s deposition on September 14.

The city’s lawsuit asked a judge to validate Faulconer’s decision to stop paying the $ 535,000 monthly rent, which then totaled more than $ 23 million for the vacant Ash Street building.

In May, Elliott’s senior aide told city council that an internal review of the transaction had been completed and the findings had been forwarded to “local, state and federal law enforcement agencies with a request in-depth and independent investigation ”.

In late June, after the Union-Tribune reported that Hughes had received more than $ 9.4 million for his work on the Ash Street and Civic Center Plaza leases, the city attorney’s office added Hughes to the defendants. in the 2020 case and amended the complaint to in order to void the two transactions.

“We look forward to the opportunity to question all parties under oath,” Elliott spokeswoman Hilary Nemchik said in a statement.

Gloria, who left city council weeks after the Ash Street lease was approved, served two terms in the California assembly before being elected mayor last November.

The mayor’s office said on Friday that Gloria supported Elliott’s management of the lease.

“The mayor continues to believe that the city was intentionally deceived and that law enforcement should aggressively investigate the 101 Ash Street transaction,” Deputy Chief of Staff Nick Serrano wrote in a statement. “He is also convinced that the city attorney’s litigation strategy is the best way to unwind this deal and get taxpayer money back.”

It’s unclear what happened to Elliott’s call for an independent investigation. The district attorney’s office, the state attorney general’s office and the U.S. attorney’s office have all declined to say whether they are investigating the transaction.


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