S.D. FILES LAWSUIT OVER ITS ASH ST. BUILDING

Complaint seeks relief from payments, claiming empty high rise unusable

San Diego city officials seized the offense Friday in a long-running dispute over a downtown high-rise that cannot be occupied in its current condition, filing suit against the landlord, lender and a host of unnamed defendants.

The six-page San Diego Superior Court complaint seeks relief from what city lawyers said is a payment structure that violates the California Constitution, which prohibits local governments from spending public money on goods or services that are not usable.

“The event of loss, damage, or destruction has resulted in substantial interference with the use and occupancy by the city of the premises, such that city is not able to occupy any portion of the premises as envisioned by the lease,” the complaint states.

“The premises are therefore unusable for the purposes intended and thereby confer no value to city,” it adds.

The lawsuit names as the initial defendant 101 Ash LLC, a limited liability company formed in 2016 to process the city’s acquisition of the former Sempra Energy headquarters at 101 Ash St., just north of City Hall.

The Delaware entity is presumed to have been created by Cisterra Development, the San Diego company that brokered the deal between the city and the building’s former owners. A spokesman for Cisterra did not immediately respond to a request for comment on Friday.

The suit also names Wilmington Trust, National Association, the company to which city officials directed $535,000 monthly lease payments between January 2017 and September 2020, and 20 unnamed entities. Representatives from that firm did not immediately respond to a voicemail message seeking comment.

Notably not named in the complaint are former building owners Sandor Shapery and Douglas Manchester, who assigned their interests in the 19-story office tower directly to Cisterra on the same day Cisterra closed its deal with the city.

The 20-year lease-to-own deal has been snake-bitten from the outset.

When Faulconer’s staff presented the agreement to the City Council, the report said the building was in good condition and noted that up to 1,100 city employees could move in by July 2017.

But asbestos contaminations and problems with fireproofing and various mechanical systems

have prevented anyone from occupying the building for nearly four years.

All the while, the city paid tens of millions of dollars to lease the vacant building and spent millions more on renovations. Faulconer suspended the payments Sept. 1 — two weeks after a San Diego resident, John Gordon, sued the city under the same legal argument the city is now putting forward.

Cisterra filed a legal claim against the city last month, alleging that city off icials wrongly withheld lease payments on the Ash Street property.

The City Council voted Tuesday to settle the Gordon case, though it remains active because Cisterra and Shapery also are defendants. The council also voted 7-2 to proceed with the case submitted Friday, with Councilwomen Barbara Bry and Vivian Moreno opposed.

City Attorney Mara Elliott said she is confident that when a judge considers all of the facts in this case, the court will agree that the city should not be forced to pay rent on a building that cannot be occupied.

Even so, “we remain open to working with all parties to negotiate a resolution that achieves the best possible

outcome for the city,” she said.

The city has retained a private law firm to litigate the case. The San Diego firm Schwartz Semerdjian Cauley & Evans filed the complaint.

Eliott was elected in November 2016, weeks after the council initially approved the deal. Her name is on the contract that was formally signed in January 2017 — an agreement that clearly says the building is transacted “as-is” and the lessee is responsible for any and all improvements.

The city attorney faces re-election Nov. 3 and her handling of the property in 2017 — and since — has become a campaign issue, even though Elliott has said most of the legal work was done before she took office.

Her challenger, San Diego attorney Cory Briggs, called the lawsuit “another election-season political stunt” weeks ahead of Election Day.

“She was the last politician to approve this disastrous transaction, did nothing for nearly four years and now she thinks voters are dumb enough to believe she’s capable of fixing it,” he said.

With Faulconer due to leave the mayor’s office in December due to term limits, the Ash Street building has become a political issue between the two candidates vying to succeed him — Councilwoman Bry and state Assemblyman Todd Gloria.

Bry blames Gloria for making the initial motion to approve the Ash Street lease when he was on the council in 2016. Gloria notes that Bry voted in 2018 to spend an additional $30 million to renovate the property.

Early this year, the city was forced to evacuate hundreds of workers from the building just weeks after they moved in due to asbestos violations issued by San Diego County.

After that, the mayor’s office retained a series of consultants and law firms to figure out what went wrong — and to evaluate how to make the building safe for city workers.

One report noted that Faulconer’s staff never performed an independent assessment of the property before agreeing to the lease-to-own arrangement with Cisterra and instead relied on the sellers’ evaluation.

Another consultant said the needed repairs could cost as much as $115 million. The property was appraised for $67.1 million weeks before Faulconer recommended the contract to the City Council.

The case filed Friday has yet to be assigned to a judge or scheduled for a hearing.