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Two previously undisclosed agreements between the city’s ostensibly unpaid real estate adviser and a company that acted as its landlord on two major deals reveal not only that he had formal agreements with the company, but that he stood to lose money if the leases he negotiated didn’t go through.
The former volunteer city real estate adviser who received $9.4 million in payments for two city lease deals also had two previously undisclosed contracts with the city’s landlord, including separate non-disclosure and fee agreements signed before the City Council voted to approve the first lease.
Those agreements came after then-Mayor Bob Filner, in 2013, appointed real estate broker Jason Hughes as his special assistant on downtown real estate issues and commended him for agreeing to work “without compensation from any party.”
Less than two years later, as an adviser to then-Mayor Kevin Faulconer, Hughes signed an agreement with the city’s eventual landlord, Cisterra Development, stating that his company, Hughes Marino, would receive 45 percent of Cisterra’s net profits on the Civic Center Plaza deal in exchange for “assist(ing) Cisterra with the successful completion of the transaction.”
The same agreement also included a pledge that Hughes Marino would pay 45 percent of Cisterra’s various costs if the hoped-for transaction fell apart. At the time, the city had not yet secured the Civic Center Plaza lease.
Hughes would eventually receive just over $5 million from Cisterra for his work on the Civic Center Plaza deal in 2015 and $4.4 million for his work on 101 Ash St. in 2017, payments that Hughes and Cisterra didn’t confirm publicly until earlier this year, as both deals faced increased scrutiny.
Those payouts exceeded typical broker fees and Hughes’ attorney has previously argued they were warranted because of the more substantial services and risks that Hughes took on personally. The fee agreement clarifies just what that risk was: Hughes stood to make money if the deal came together and to lose money if it didn’t.
The 2015 fee agreement came roughly two months after Hughes and Cisterra chairman Steven L. Black signed a non-disclosure agreement on Hughes Marino’s letterhead dictating that Hughes Marino and Cisterra could only share confidential information – including “information about, and the terms and conditions of, their respective involvement and roles in the transaction” – if it was deemed “necessary to facilitate the transaction.” The contract required that both Cisterra and Hughes Marino let the other party know if they shared any confidential information and stated that the agreement would never terminate.
City Attorney Mara Elliott’s office and two legal experts who reviewed the documents at the request of Voice of San Diego argue the two agreements provide more troubling evidence of alleged conflicts of interests for Hughes, who was paid for his work on both Civic Center Plaza and 101 Ash St. leases. As far as the public knew when the agreements were signed, Hughes was working for free.
The city’s cases rest on state Government Code Section 1090, which bars government officials from engaging in an official capacity when their own financial interests are at stake. Though the law can also apply to consultants like Hughes, particularly when they provide advice to government officials, his attorney has argued the law doesn’t apply to him due to his more informal, unpaid position. Hughes never signed a contract laying out his role as a special real estate adviser to the city, a move that city auditors deemed problematic in a recent, wide-ranging review of troubled city real estate deals.
The most high-profile of those is far and away 101 Ash St., which the city evacuated in early 2020 due to asbestos concerns, triggering both media and official inquiries. How the deal went down and who was to blame for the ongoing legal mess became a point of contention in last year’s mayoral race.
Attorneys for the city can now point to the non-disclosure and fee agreements and argue, as they attempt to void both leases in court, that Hughes had signed formal contracts with the city’s landlord.
Elliott spokeswoman Hilary Nemchik said the city didn’t learn of the agreements between Hughes and Cisterra until it received them in response to a subpoena late last month.
An attorney for Hughes and a spokesman for Cisterra, however, separately contended that top city officials were made aware that Hughes intended to be paid for his work on more complex lease-to-own deals, particularly in a November 2014 letter they claim former city real estate chief Cybele Thompson signed.
Thompson has said she doesn’t recall signing the letter where Hughes wrote that he “would seek to be paid customary compensation from any other parties in the transaction” due to the complexity and work he said would be necessary for the Civic Center deal.
Hughes attorney Michael Attanasio said his client was simply moving forward with the understanding that he was eligible to get paid and on direction from city officials to execute a non-disclosure agreement. The non-disclosure agreement was dated two days before Hughes’ letter and declared effective August 2014.
“If (Hughes) wanted to hide this arrangement and the fact that he would be paid by Cisterra – something that the mayor and Cybele Thompson knew about and approved at least two months earlier – a lengthy written contract was hardly the place to do it,” Attanasio wrote in an email to VOSD.
Attanasio also wrote that Hughes pursued the non-disclosure agreement amid city officials’ concerns about risks they faced with Civic Center Plaza, namely fears about what might happen if word leaked out about the city’s predicament with a building where city employees had worked for years. At the time, the city feared it could be evicted if it couldn’t make a deal and was unable to go to the bond market to buy the building itself.
Attanasio said former Assistant Chief Operating Officer Ron Villa was among those leading the charge for the non-disclosure agreement.
Yet Villa disputed his involvement.
“Jason Hughes was not under contract with the city so there is no way that I would have directed him to do anything,” Villa wrote in a text message to VOSD. “He worked directly with the mayor.”
Hughes’ attorney, in fact, has argued in court filings that the city’s failure to clarify Hughes’ role and to order him to file formal disclosures should sink the city’s attempts to kill the lease deals.
Hughes wrote in multiple emails to city officials that he hoped to be paid for his work on complex lease-to-own deals, namely the Civic Center Plaza transaction.
“Despite this specific knowledge of Jason’s intent at the highest levels of the city, nobody at the city ever required or even asked Jason to make further disclosures of any kind,” Attanasio wrote.
But Nemchik said the City Attorney’s Office wasn’t aware until recently of the emails where Hughes suggested he’d like to be paid for his work on the leases, the letter Hughes has said was signed by the former real estate chief or Hughes’ claims that Faulconer and a top aide also signed off on Hughes’ request. (Former Faulconer administration officials have denied they were aware of any payments.)
Nemchik also argued that the communications Hughes’ attorney describes constitute less than full disclosure – and that Hughes should have alerted the city about the large payouts he received.
“The law required that Hughes disclose his financial interests and payments, not his desires and intentions,” Nemchik wrote in an email to VOSD. “The fact remains – Hughes never publicly disclosed his financial interest in the 101 Ash and [Civic Center Plaza] contracts or his $9.4 million in paychecks from Cisterra.”
Two outside legal experts said they believe city officials should have ordered Hughes to file Form 700 disclosures, which are documents that ostensibly would have revealed the large checks from Cisterra.
But former California Fair Political Practices Commission chair Ann Ravel and Gary Schons, a former senior assistant attorney general who later spent years advising governments on issues, including Government Code Section 1090, both said that the contracts with Cisterra raise serious conflict-of-interest questions.
Ravel said Hughes’ agreement to help cover costs should the deal go south were particularly troubling.
“What that shows is that he’s clearly got a self-interest in this deal,” Ravel said. “He wants to make sure it goes through.”
At the heart of Government Code Section 1090, Schons said, is the conclusion that those working for or on behalf of governments shouldn’t be serving both those interests and other private ones, including their own.
Hughes’ agreements with the city’s would-be landlord gave him more skin the game.
“It’s one thing to have an interest if the deal is made. That’s sort of the common thing,” Schons said. “It’s a whole different level of conflict when not only would you make money if there is a deal, but you’ll pay money if you don’t.”
Hughes’ attorney is adamant that they are wrong.
“Anybody who understands section 1090 and really looks at the facts will easily conclude there was no violation. You cannot have a violation when there is transparent disclosure,” Attanasio wrote. “You cannot have a violation when there is a document signed by the City’s top real estate official acknowledging that (Hughes) would be paid – not by the city – for his work on the real estate transactions.”
A judge will likely decide who is right.