The city of San Diego announced Tuesday that it is suing to void its lease-to-own agreements in the 101 Ash Street and Civic Center Plaza building deals due to an advisor allegedly receiving millions in undisclosed compensation for negotiating the transactions in violation of state law.
The City Attorney's Office alleges that commercial real estate broker Jason Hughes represented himself to be a "special volunteer for real estate services" who was negotiating the deals on the city's behalf for free "out of a sense of civic duty."
However, the city says he was actually paid $9.4 million in unreported compensation from Cisterra Development. When negotiations between Hughes and the 101 Ash Street building's owners did not resolve, the city says Hughes entered into negotiations with Cisterra for a lease-to-own agreement if Cisterra acquired the building.
"Hughes' conflict of interest prohibited the city from receiving impartial advice regarding alternative locations and better leasing terms," the City Attorney's Office said in a statement. "Had the city council known about the payment to Hughes it reasonably would have behaved differently."
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Hughes' attorney, Michael Attanasio, issued a statement denying that Hughes ever hid the fact that he was receiving payments.
"Jason transparently disclosed to the city and several of its highest- ranking elected and appointed officials his intent to seek compensation from the private sector for his role in these transactions," the statement read. "Although Jason was under no legal obligation to make such disclosures in light of his unofficial role, he did so to ensure that his intentions were transparent and known to senior city officials. The disclosures were made orally and in writing, and the city formally acknowledged, accepted and signed off on Jason's entirely appropriate intent to seek compensation."
The city alleges it learned of $4.4 million Hughes was paid as part of the 101 Ash Street transaction through its litigation over the city's lease- to-own deal for the downtown high-rise, which was evacuated due to asbestos violations shortly after city workers were moved into the building. The skyscraper remains vacant, and questions and accusations abound among elected officials and the general public over how the deal went through amid apparent structural issues with the building.
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Hughes allegedly also received an unreported sum of around $5 million from Cisterra for negotiating the Civic Center Plaza deal.
The City Attorney's Office alleges San Diego is entitled to more than $44 million in reimbursement for rent paid for both buildings since they say the allegedly unreported payments violate California Government Code section 1090, which prohibits public officials from participating in making contracts in which they have a financial interest and private parties from providing compensation to public officials that would create a financial interest.
"It's now clear why the 101 Ash Street deal has been shrouded in secrecy: At its heart is a massive betrayal of the public trust and a clear violation of California's anti-corruption laws," City Attorney Mara Elliott said. "Questions still remain about who else knew of the secret payment to Jason Hughes and what other laws may have been broken. We will continue to dig for answers and to use every tool we can to return taxpayer funds to the city treasury."
Mayor Todd Gloria, who sat on the City Council that approved the deal in 2016, said the council and the general public "were deceived."
Gloria said, "After months of looking into this transaction with the city attorney, we believe we have found wrongdoing."
