Lender behind Ash Street, Civic Center Plaza Leases Not Satisfied with City Attorney’s Plan to Rescind Contracts

The fallout from San Diego’s problematic capital lease for Sempra Energy’s former headquarters at 101 Ash St. continues to spread.

The lender that has financially backed Cisterra Development, the middleman that leased the 19-story skyscraper to the city of San Diego on behalf of its former owners, announced late last week that it would do its utmost possible to protect your investment.

Meanwhile, a state appeals court has rejected an offer from city attorney Mara Elliott to get a citizen lawsuit challenging the court-rejected deal.

The three-judge panel dismissed the appeal late last week, meaning plaintiff John Gordon and his lawyers can pursue legal action to get back the tens of millions of dollars the city has paid. to rent the vacant building and the cancellation of the original lease.

The two developments followed a report from the San Diego Union-Tribune early last week revealing that Jason Hughes, a downtown real estate broker who said he was advising the city for free, had collected by $ 10 million on the Ash Street transaction and another long-term lease from Cisterra. .

The city, which had previously suspended its monthly lease payments of $ 535,000 on the Ash Street property, announced last week that it would sue Hughes to recover the money and cancel the leases of the old Sempra building and the Civic. Center Plaza, the other property that Hughes helped lease town of Cisterra in 2015.

CGA Servicing was the company that processed the loan payments on both properties.

“The withholding of rent payment on Civic Center Plaza (CCP) and 101 Ash St. is in violation of the terms set out in the lease and accepted by the city,” said W. Kyle Gore, general manager of CGA Servicing, in a statement. declaration.

“The lender is reviewing the city’s recent legal records and will review their claims, but will vigorously pursue all appeals in court,” Gore added.

The city attorney’s office said Tuesday that the legal arguments that led to the city’s appeal have been overtaken by recent events.

“After the city challenged John Gordon’s alleged taxpayer status, it uncovered facts that support last week’s actions to rescind the leases of 101 Ash Street Building and Civic Center Plaza,” the door said. – speech Hilary Nemchik by email.

“In light of our amended complaint, which includes this newly disclosed information, we anticipate Judge (Joel R.) Wohlfeil will reconsider Mr. Gordon’s role in this litigation,” she added. “While we remain open to finding a viable solution with the lender, public funds cannot be used to pay for a canceled lease.”

The property at 101 Ash St. has been vacant for a few weeks since 2015, when Sempra moved into a new building on nearby Eighth Avenue that was built by Cisterra. Asbestos and other problems prevented city workers from safely occupying the Ash Street building.

Former Mayor Kevin Faulconer recommended the lease-to-purchase agreement as a way to address the city’s downtown office space needs. His administration told city council the arrangement would save the city $ 44 million in future office space costs.

Then-board member Todd Gloria made the initial motion to proceed with the contract.

As with that deal, the city also relied on Hughes to negotiate with Cisterra to acquire the Civic Center Plaza in 2015 as part of a deal similar to the Ash Street lease-buy agreement.

Faulconer said through a spokesperson that he was unaware that Hughes had been paid millions of dollars by Cisterrra for his services on both contracts.

Hughes said through his lawyer that he informed Faulconer and other senior city hall officials that the transactions were complicated and that he expected to be paid.

He did not disclose the payments publicly until last week. Elliott said she confirmed the payments earlier last month.

When San Diego City Council approved the Ash Street lease in 2016, the contract placed full responsibility for repairs and remediation on the buyer rather than the seller, meaning the city was responsible. improvements that an outside consultant estimated last year $ 115 million.

Sandor Shapery, the longtime majority owner of the property at 101 Ash St., signed an exclusive deal with Cisterra in 2016 that called on Cisterra to market the property to the city.

The previous year, Shapery had sold a 49% stake in the building to developer Douglas Manchester, one of Faulconer’s major political donors, for $ 20 million.

In what is known as a dual escrow transaction, Shapery and Manchester ceded the property to Cisterra on January 3, 2017, and Cisterra immediately transferred control of the building to the city.

Just before the lease was approved, the Ash Street office tower was valued at $ 67 million, but the city agreed to pay $ 91.8 million for the building under a capital lease. 20 years old.

Last August, Gordon sued the city, a Cisterra affiliate called 101 Ash LLC and others, alleging the contract was illegal because it put the city in debt without a resident vote. The lawsuit says the money paid by the city should be recovered.

Elliott, who filed his own lawsuit against Cisterra and others in October that did not seek to quash the deal or recover public funds, has tried to have the Gordon case dismissed.

After a superior court refused to dismiss Gordon’s claim earlier this year, the city appealed to a superior court. Appeals judges ruled late last week that the Gordon case could continue.

“The motion for a warrant or other appropriate remedy has been read and considered by Presiding Judge McConnell and Associate Justices O’Rourke and Dato,” the order said. “The petition is rejected.

San Diego attorney Maria Severson, who co-represents Gordon in the lawsuit, said Tuesday the appeals court ruling would help taxpayers better understand what happened with the Ash Street lease .

Among other requests, Severson asked the city attorney’s office to identify who specifically learned of the payments to Hughes related to the Ash Street and Civic Center Plaza leases and when.

“The court’s denial of the city’s order guarantees that there will be no collusive settlement of the case,” she said. “It gives the taxpayer the ability to know when city officials learned of an illegal payment, how they found out, and to whom they told it.”

Severson said she had filed a series of questions with the city that, if answered, would help explain why the city pursued the deal on Ash Street.

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