Audit Pans City Real Estate Dealings
A city audit released late Thursday found that real estate acquisitions on former Mayor Kevin Faulconer’s watch suffered from insufficient due diligence, less than full disclosure to the City Council and a lack of clarity on various responsibilities that led to increased costs and underutilized properties.
The city audit – which covered the 101 Ash St. debacle, the city’s controversial acquisition of a shuttered downtown skydiving facility and three other deals – found that the city failed to follow best practices and to establish who was in charge of various tasks, including vetting properties.
“Overall, we found that a serious lack of policies and oversight caused the city to miss or skip key steps in the acquisition process, and allowed the prior city administration to leave out or misrepresent key information about building acquisitions when presenting them to the City Council and the public,” auditors wrote.
Among the missteps documented in the audit: Auditors found that the city often failed to seek independent appraisals ahead of acquisitions or to conduct asbestos inspections required by city policy.
The release of the report follows moves by the city to void its 101 Ash and Civic Center Plaza leases in the aftermath of the revelation that the city’s purportedly volunteer real estate adviser Jason Hughes was paid $9.4 million for his work on the deals.
Auditors concluded that, per the city’s conflict-of- interest code, Faulconer’s former chief of staff should have documented Hughes’ duties and advised him on whether he needed to file formal city disclosures. Auditors argued that Hughes should have had a formal contract with the city.
Faulconer and the city’s former real estate director did not sit for interviews with city auditors despite requests.
Auditors also alleged that city attorneys failed to consistently point out legal risks to the city, particularly on the 101 Ash lease-to-own deal – a finding that City Attorney Mara Elliott disputed in her response to the audit.
“The audit overlooks that the former city attorney, like the council, had no reasonable basis on which to raise ‘red flags’ at the time of approval of the 101 Ash transaction,” Elliott wrote.
To avoid future missteps, city auditors urged multiple reforms including a new municipal code section allowing enforcement should city officials fail to accurately represent information to the City Council, creating best practice and due diligence checklists for acquisitions and developing a strategic city real estate plan, among other recommendations.