How Asbestos Revealed Where the Money Went on a Bad Building Deal

Government

How Asbestos Revealed Where the Money Went on a Bad Building Deal

We’ve long known that the 101 Ash St. deal was an embarrassing city blunder. None of the revelations had yet confirmed, though, that anyone walked away from it significantly richer than they had been. Until now.

101 Ash St. / Photo by Adriana Heldiz

It’s kind of wild what we would have never found out had city contractors not disturbed asbestos in 101 Ash Street.

The building, the former headquarters of Sempra that the city hoped would house hundreds of workers into perpetuity, has been a scandal for many years – mostly a scandal of incompetence. How could the city find itself leasing to own such a lemon? Every building of that age has asbestos, how was the city so terrible at remodeling it that it became uninhabitable? Why did they lease to own it rather than buy it outright?

It had clearly been a failure, a blight on the former mayor’s claim to be a good manager of public affairs, a legal quagmire, a health hazard, an embarrassing waste. None of the revelations had yet confirmed, though, that anyone walked away from it significantly richer than they had been.

Until now. Monday we learned that Jason Hughes actually walked away from the deal with more than $4.4 million.

Hughes has been a major figure in San Diego public affairs for almost nine years. Before that he had helped kill a plan former Mayor Jerry Sanders drew up to get San Diego a new City Hall. Sanders had hoped to save the city money on its many commercial leases and remake the C Street corridor.

But Hughes joined with then Councilman Carl DeMaio to argue that the city could simply use market savvy and renegotiate its leases. Hughes would even do it, he said, for free.

Sanders passed but new Mayor Bob Filner did not and they became close.

(It was around this time, I got to know Hughes as well. He became a major donor to Voice of San Diego and my wife had a job doing graphic design and marketing for his firm. In 2016, he helped our staff get a new lease downtown, right across the street from 101 Ash. His last donation was in 2019 though his firm helped us extend our option at the current office.)

Filner and Hughes were a dynamic pair. They delivered new leases and brainstormed a complete remaking of downtown on the weekends. Over and over we heard how Hughes, working for free, delivered so much value for the city.

“I look at this as not only a civic duty, but also a way to protect the rest of my clients downtown …,” he told reporters as he and Filner delivered new deals. When Filner flamed out, new Mayor Kevin Faulconer picked up where they left off.

Hughes started courting many politicians like state Sen. Ben Hueso and Assemblywoman Lorena Gonzalez, who helped him pursue new bills, one of them successful, to force commercial brokers to disclose when they were representing both the landlord and the tenant in a lease negotiation.

That was his edge, that was his separation statement: He would represent only the tenant and never the landlord. Other commercial brokers, he said, were too often representing landlords and tenants at the same time. He, on the other hand, was the champion of the small business looking for space. The new law helped him emphasize the point: He would not have to fill out those disclosures because he only represented tenants.

Faulconer tapped Hughes to be on his task force for finding a new stadium for the Chargers – another unpaid gig – and then, in 2014, Faulconer put Hughes on one of the stickiest situations.

Hundreds of city staff were working out of Civic Center Plaza, across from City Hall. It housed most of the city attorneys. But the owner of the building wanted the city out and negotiations to buy it were a mess. Hughes got to work. He got a company, Cisterra, to come in and purchase the building and immediately work out a lease-to-own deal with the city. He told the city that this was a more complex deal and he would want to get paid.

But as far as the public knew, he was still volunteering. There was no financial disclosure that he would be getting money from this new landlord while representing the city for free. The deal was just the right one for the city. It didn’t have to mess with borrowing money, which it sometimes struggles to do. It would own a building outright in a prime location within a couple decades.

We learned Monday that Cisterra paid Hughes a $5 million commission for helping them make this deal happen.

We never would have though had it not been for 101 Ash Street, a completely different building. Hughes, still working with the mayor, the public still assuming he was a volunteer, began to help on a different problem. Hundreds of city staff, mostly from Development Services, needed offices, quickly.

Sempra had vacated its longtime headquarters also adjacent to City Hall. While it wasn’t great for Sempra, it marked a major improvement for city staff. Hughes started talking to its owner, Sandy Shapery and Doug Manchester. But Manchester is a very controversial figure and a major financial supporter of Faulconer’s political campaigns and the Republican Party. Buying a huge piece of property from him would have been a major political problem. Whether it was that or the price, city staff couldn’t make a deal.

Hughes called Cisterra again. They worked up a similar deal. The city would avoid having to buy from Manchester and Shapery. It would avoid having to borrow money. Cisterra would buy the building and then the city would immediately lease to own it from Cisterra.

But soon after, Hughes had a falling out with Faulconer. The city’s Real Estate Assets Department put out a call for bids for construction management services. Hughes’ company was deemed the winning bidder.

City staff, however, had grown concerned about conflicts of interest and asked the city attorney whether Hughes could have the contract given his volunteer service. In January 2017, the city consummated a deal to acquire 101 Ash – and by May 2017, the city appeared ready to move forward with that contract with Hughes Marino – except it wouldn’t include work on 101 Ash.

Hughes was furious when he learned 101 Ash wasn’t part of the contract. He was so furious he never signed the contract to potentially manage projects at other city facilities.

Other workers got the 101 Ash job and they somehow disrupted asbestos in the building. The city could not move workers into it. Eventually, the Union-Tribune’s Jeff McDonald started to add up how much this was costing the city and his story provoked discussion about the building and the waste. Finally, the city moved employees in only to immediately evacuate them after the county’s air pollution control regulators said it was unsafe.

The scandal erupted. It became a big part of the mayor’s race with one candidate excoriating the other for signing off on the deal and then the other candidate slamming the first one for signing off on the renovation. But the question kept coming up: Why had the city done the lease-to-own deal? And where had the money gone?

Our Lisa Halverstadt started to piece together the deals. She discovered that Hughes had alerted the city he would want to be paid for the Civic Center Plaza deal. But the city was steadfast that he had never disclosed getting paid.  When Halverstadt started to piece together his role as the architect of both deals, she asked him directly if he had gotten paid.

“I have too much respect for the principals of the 101 Ash Street transaction to discuss their business dealings in the press, especially when those principals are involved in litigation, but you can be absolutely sure that I would not participate in any transaction without making the requisite disclosures. Any assertion to the contrary would be defamatory.”

That’s not a no.

The city subpoenaed Hughes and others seeking the answer to the same question Halverstadt had asked. And just as we were about to hear the results of that, Cisterra and Hughes decided to come out with the facts. Yes, they said, Hughes had gotten paid, nearly $10 million in total for both deals.

Why would they so readily admit it? Why would they, in one day, bulldoze the façade that had lasted for eight years that Hughes was doing a volunteer civic duty? It’s because the city now seeks to unravel both deals on the claim that Hughes had a severe conflict of interest that makes both arrangements void. It’s because they have decided their best defense, the only way to save the deal and maybe $24 million in clawbacks is to argue that the city knew Hughes was getting paid all along. Faulconer knew and signed off on it, is their contention.

If that’s true than Faulconer has been lying for years that his close associate, donor and volunteer real estate advisor had actually gotten paid almost $10 million without disclosing it in any form over many years. Faulconer’s team denies he knew this.

There’s a unsettling reality here: We wouldn’t know any of this if Hughes had managed to get the construction contract and not fumbled the effort to keep asbestos out of the air as badly as the city or its contractors did.

He’d have remained known as a volunteer for the city who a very small number of people knew actually made almost $10 million during his service. What we need to know now is if the former mayor was one of them.

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