The settlement would transfer ownership of the two downtown office buildings to the city, saving taxpayers $15 million according to Gloria while avoiding costly litigation, but leave the city responsible for needed renovations.
City Council President Sean Elo-Rivera and Councilmember Chris Cate, the lone Republican on the council, both announced support, though at lease one other councilmember expressed concerns.
“Because there was no possibility of an ideal outcome from this civic debacle, our aim was to reach a lawful, fair settlement that limits the city’s liability and is in the best interests of taxpayers, which is what this proposed settlement is,” Gloria said.
“Nothing in the proposed settlement absolves anyone of any criminal wrongdoing,” he said. “Law enforcement can — and should — continue investigations into anyone who may hold criminal liability as part of this transaction and its aftermath. What this settlement does is put the needs of the city and its residents first.”
The two downtown office buildings were acquired by the city through lease-to-own transactions during Mayor Kevin Faulconer’s administration, but 101 Ash, the former headquarters of Sempra, was soon found to be unusable with major renovation because of asbestos.
The settlement would reimburse the city for $7.4 million in profit that Cisterra Development made selling 101 Ash, while allowing Cisterra to keep its $6.2 million in profits from the sale of Civic Center Plaza. In addition, lender CGA Capital would waive a prepayment fee of $11.7 million.
Both companies praised the agreement, with Steve Black, chairman of Cisterra, saying, “We are pleased to have reached a settlement that opens the door for the city to redevelop the civic core of downtown San Diego.”
The transactions were tainted by the involvement of real estate broker Jason Hughes, and nothing in the settlement will preclude the city or district attorney from pursuing possible legal action against him.
“The 101 Ash saga has been a civic tragedy that should infuriate every San Diegan. Lying millionaires and an incompetent previous administration put our city in a terrible position that has cost San Diego years of progress, millions of dollars, and eroded public trust,” said Elo-Rivera. “The proposed settlement, while not ideal, is the best business option available to the city.”
“It is time to close this chapter,” said Councilmember Chris Cate, the one Republican member of the council. “As we look to the future, the taxpayers deserve the certainty of putting this bad deal behind us.”
But Councilmember Vivian Moreno said the city should have pursued litigation instead of settling.
“This settlement will be a dark cloud hanging over City Hall for decades to come,” she said. “I am fully confident that if the city went to trial, we would prevail and shield taxpayers from further losses, while at the same time finally uncovering the truth of what happened.”
The deal ensures the 800 city workers can remain in Civic Center Plaza without disruption and provides flexibility as to what to do with the five city blocks that comprise the Civic Center and 101 Ash.
But the city will be responsible for removing the asbestos from 101 Ash, work that could cost tens of millions of dollars.
The settlement discussions took place over 18 months with the guidance of retired Federal Magistrate Judge Jan Adler. The city was represented by outside legal counsel Dick Semerdjian of the Schwartz Semerdjian law firm.
The settlement will be discussed with the full City Council next Monday.
Updated at 3 p.m., Monday, June 20, 2022