FINDINGS REMOVED FROM PUBLIC VERSION OF ASH STREET INQUIRY
Questions arise over who made edits; Gloria silent on issue
Dozens of passages were removed from the public version of the forensic review into the city of San Diego’s acquisition of the former Sempra Energy headquarters at 101 Ash St., according to records obtained by The San Diego Union Tribune.
Many of the findings edited out of the public report issued in August detail how the city came to pay tens of millions of dollars to lease an uninhabitable downtown high rise and how renovations to the property were botched.
Other sections omitted from the published document concern the lack of clarity about the building’s value and what happened to the money the city paid to the deal’s middleman, Cisterra Development.
“Cisterra claimed a 5 percent fee against the total price of $91.8M, or $4.5M,” a version of the report dated July 25, 2020, said. “If so, then Cisterra’s fee and its loan interest payments account for around $10M, which leaves $4M to $5M not specifically accounted for.”
The city hired the Hugo Parker law firm last year to perform the forensic review.
According to previously released emails, the July 25 version was sent to then Mayor Kevin Faulconer and to City Attorney Mara Elliott in late July — days before the Aug. 3 public release of the report.
The former mayor indicated that his office made
no changes to earlier drafts, and the City Attorney’s Office said whatever input Elliott provided did not alter the results in any significant way.
The revisions are important because Faulconer and Elliott were subjects of the review. Faulconer recommended the Ash Street deal and supervised the renovations; Elliott signed off on the lease as well as the subsequent repair contracts.
Faulconer did not respond to questions about changes made to the initial Hugo Parker findings. Instead, he directed his former chief of staff, Aimee Faucett, to issue a statement saying the Mayor’s Office had no role in changing the report.
“At no time was Hugo Parker directed by the Mayor’s Office to exclude any of the facts that were determined during their review of the real estate transaction nor the tenant improvements,” the Faucett statement said.
“Hugo Parker and the City Attorney’s Office maintained full control over the content, its findings and its conclusions.”
Elliott acknowledged in a statement that her office helped secure documents and schedule interviews for attorney James Parker. She also said she provided feedback on the initial results but said that was her duty as city attorney and her actions did not affect the finished product.
“Our office assisted Mr. Parker by obtaining necessary documents and interviews, reviewing drafts, and offering comments, but no changes Mr. Parker made as a result of our review changed the substance of outside counsel’s findings or recommendations,” the statement said.
Parker said information was taken out of the public version of his report to protect the city, and any significant changes were made under his direction.
“It was not edited in any substantive way by anyone but me ... I alone decided what should not be included in the public report,” he said by email.
The city first announced it would conduct a forensic review of the Ash Street deal in January 2020, days after officials evacuated hundreds of workers from the 19-story high rise due to a series of asbestos violations issued by county regulators.
At the time, then-chief operating officer Kris Michell pledged that the results of the investigation would be released to the public.
“We are committed — I am committed — to getting the answers that we all want so that we can make the best decisions possible on a going-forward basis,” she told the City Council. “It is our goal to make the findings public and I am sure we will.”
Michell unexpectedly announced her resignation in September, a month after the report was released publicly, becoming the third senior Faulconer aide tied to the Ash Street transaction to depart City Hall.
The Union-Tribune obtained copies of what appear to be prior versions of the report. The documents were delivered to the newspaper anonymously, without comment or contact information from the source.
The Union-Tribune shared the edited excerpts in this story with Elliott, Parker and Faulconer, who responded to questions but did not specifically comment on each excerpt.
A page-by-page analysis of the three versions of the report — dated July 25, July 29 and Aug. 3 — shows that they contain mostly identical language in their respective narratives across the 40 or so pages of each document.
But critical portions of the July 25 version do not appear in the July 29 report.
The public document is virtually identical to the July 29 version, except for a section disclosing for the first time that the office tower cost $20 million more than what city officials previously stated and that the city reimbursed Cisterra’s closing costs, legal fees, bank costs and a host of other expenses.
“A purchase was a substantially better deal financially for the city” than the lease-purchase deal the city signed, the initial version of the Hugo Parker report noted.
At the time the reports were issued, Elliott was in the middle of a contentious re-election campaign she won in November. Faulconer was due to vacate the Mayor’s Office late last year and now is running for California governor.
Dubious decisions
The Mayor’s Office first recommended the city acquire the office tower at 101 Ash St. in 2016, one year after Sempra vacated the property in favor of a new downtown headquarters built by Cisterra on nearby Eighth Avenue.
Despite being 50 years old, the Ash Street building was in great condition and needed little more than a $10,000 power-scrubbing, Faulconer’s staff told the council. The move would save the city $44 million by consolidating employees from other leased space into the mid-century high rise.
But the city was unable to issue bonds to finance the purchase because officials agreed to pay millions above the building’s appraised value, which first came in at $62 million and then at $67 million.
Officials settled on a lease-to-own arrangement through Cisterra, which would transfer ownership to the city after 20 years.
The Mayor’s Office had told the City Council the building could be occupied by July 2017. Instead, a spate of problems prevented the high rise from being used safely.
The Union-Tribune reported in 2018 that taxpayers were spending $18,000 a day to lease the vacant building. Later that year, Faulconer’s office told the City Council the property could be fully renovated for an additional $30 million.
Council members approved the added spending, but the repairs went slowly. The city finally moved hundreds of employees into the building in late 2019 but they were evacuated weeks later due to asbestos contaminations.
The July 25 report from Hugo Parker raises questions about the city’s Ash Street acquisition and renovation decisions.
“The exact extent of the abatement is not known and cannot be readily determined from the abatement records maintained at 101 Ash,” reads one portion of the report that was removed from the public version.
Another clause taken out of the public report questioned why the city did not buy the property directly from the owners, investor Sandor Shapery and his minority partner, developer Douglas Manchester.
“Why did Cisterra act as a middleman?” the initial report asked. “Why not acquire the property from Shapery directly?”
The public version noted that Cisterra signed an agreement with Shapery for $100,000 a month to market the property exclusively for lease to the city. It also said Cisterra played an “outsized” role in the transaction.
Several footnotes also were trimmed from the public report, including one discussing Sempra executive James Seifert’s testimony before state regulators in 2014 that the building needed tens of millions of dollars in upgrades.
“Seifert’s (California Public Utilities Commission) testimony did not come to the city’s attention until early 2020 when it was sent to the city by a media outlet seeking comment,” the excised footnote said.
Several clauses removed from the July 25 report pertain to the city’s mistakes in evaluating the size and scope of the asbestos problem and how much it would cost to remediate.
“The exact extent of the abatement is not known and cannot be readily determined from the abatement records maintained at 101 Ash,” the pre-public report said.
“As discussed below, however, the failure to appreciate the extent of the pre-existing asbestos may have meant that the building-wide, year-long work in 2019 was not performed with sufficient care.”
Another section taken out of the public report noted that the lease arrangement protected Cisterra and the former building owners rather than the city.
“Cisterra’s position as a middleman between the city and the long-time owner of the building may act to legally shield Cisterra and the prior owners from liability for non-disclosure,” the July 25 version states.
Threats from lawyers
The dates noted on the three different versions of the report cover a contentious week for both the mayor and city attorney.
Elliott presented the council a version of the report in a closed session July 28.
The same day, a spokesman for Faulconer distributed the edited July 29 version to a reporter on an embargoed basis, meaning it could not be reported on until 5 p.m. the next day. The Union-Tribune was provided the same report on the 29th.
Meanwhile, also on July 29, previously released emails show that NBC 7 contacted the Mayor’s Office for a response to documents related to Ash Street that the news station had obtained.
Parker quickly emailed two NBC 7 journalists and copied Elliott and several others at City Hall.
“It has just come to my attention that you are in possession of my firm’s full, confidential ‘Preliminary Report on 101 Ash Street’,” Parker told NBC 7 journalists Tom Jones and Dorian Hargrove.
“Your receipt of these materials not only violates the attorney-client relationship which the city controls, but may constitute the receipt of stolen property,” he added. “On behalf of my law firm and the city, I hereby demand that you forthwith return both confidential reports.”
The next day, July 30, Elliott wrote a memo to council members warning them that disclosing confidential materials presented in closed session was illegal and against the city’s interests.
“When a city official or city staff discloses confidential communications, it not only compromises the city’s position, but also makes it difficult for our office to provide thorough and candid legal advice,” the memo said.
Also on July 30, Elliott’s office notified Hargrove that a criminal investigation had been opened into the leak of confidential documents and requested he return any materials unlawfully in his possession. Hargrove posted the letter on social media and within hours Elliott said the notice should not have been sent and the matter was closed.
The public version of the Hugo Parker report shows it was “revised” July 30 and then “corrected” Aug. 3 to add a section outlining the $92 million cost of the Ash Street office tower.
‘Deliberate fraud’
By Aug. 6, when the City Council met in a special session to consider what to do next, a separate report stated that overall repairs for the Ash Street building would exceed $115 million.
Members of the council were irate. They refused to appropriate one more dollar to the project and demanded monthly updates. Councilwoman Vivian Moreno went so far as to call the whole arrangement a crime.
“This could not have been the result of incompetence; this was a deliberate fraud,” she said.
Two weeks later, San Diego resident John Gordon filed a lawsuit against the city, Shapery, Cisterra and others, demanding the city stop making the $535,000 monthly lease payments and the city be repaid its misspent millions.
On Sept. 1, Faulconer suspended the payments.
Days later, NBC 7 reported it had obtained a document containing “Footnote 15” purporting to show that Todd Gloria, then a candidate for mayor, may have misled the public about the Ash Street deal when he was on the council in 2016.
It also said Elliott may have shielded him from investigators.
Both Gloria and Elliott, close political allies who each won their November elections, vehemently denied the allegations and said the footnote was fabricated in an effort to hurt their political campaigns.
NBC 7 retracted the story more than a week later and suspended Jones and Hargrove.
In October, Elliott sued the limited liability company Cisterra created to complete the transaction. The suit does not accuse the defendants of improper behavior or demand money be returned.
Cisterra, which has declined to comment publicly on the lease, cross-sued the city earlier this year.
While each of those cases proceed in San Diego Superior Court, the city also is confronting dozens of legal claims from employees and contractors who said they were wrongly exposed to asbestos in the Ash Street building.
Gloria, who was one of the leading proponents of the lease when he was on the council five years ago, has been largely silent about the deal since he was elected mayor.
His spokesman last week declined to comment on edits to the Hugo Parker reports.
“The Gloria administration is not going to speculate on the rhyme or reasons of the prior administration,” spokesman Nick Serrano said in a statement. “Questions about their actions, motives or omissions should be directed to them.”
The statement said the mayor is working to determine a path forward.
“He has committed to being open and transparent with the public once a solution is reached,” Serrano wrote.