Mayor Gloria, Councilmembers Announce Proposed Legal Settlement on 101 Ash, Civic Center Plaza

FOR IMMEDIATE RELEASE
Monday, June 20, 2022

CONTACT:
Mayor Press at [email protected]

SAN DIEGO - Mayor Todd Gloria and members of the City Council today announced that the City has reached a proposed legal settlement with the owners of 101 Ash Street and Civic Center Plaza - two Downtown office buildings acquired by the City through lease-to-own transactions during the prior mayoral administration. Both transactions were tainted by the involvement of a broker who purported to be advising the City in the purchases while simultaneously engaged in a profit-sharing agreement with the seller.

The proposed agreement minimizes the potential substantial risks to taxpayers and the City consisting of years of costly litigation with an uncertain legal outcome. The settlement also enables the City to move forward on future uses for the Downtown city blocks it owns.

"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," said Mayor Todd Gloria. "Nothing in the proposed settlement absolves anyone of any criminal wrongdoing. 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."

Under the agreement, the City will directly purchase both the Ash Street and Civic Center Plaza (CCP) buildings, and lender CGA will waive the make-whole penalty contained in the current lease agreement. The loans will then be restructured at a more favorable tax-exempt interest rate. These steps will save taxpayers $15 million over the current lease-to-own arrangement and financing.

As part of the settlement, Cisterra will return to the City the $7.5 million profit it made from the 101 Ash St. transaction.

"It is time to close this chapter,"said Councilmember Chris Cate. "During this process, I have worked with the Mayor and my colleagues to diligently work through the facts of this case, as well as the resulting reports, audits, and recommendations. Every recommendation has been accepted, and with this settlement agreement, the City can move forward with important lessons learned. As we look to the future, the taxpayers deserve the certainty of putting this bad deal behind us."

The City will be entitled to all insurance or third-party reimbursement related to the botched remediation of 101 Ash that took place during the prior mayoral administration and will be able to determine the best course of action to garner the most value from building, which occupies a full block downtown adjacent to the Civic Center.

The deal ensures the 800 City workers officed at CCP can remain in the office building without disruption and provides maximum flexibility as to what to do with the five city blocks that comprise our Civic Center and the Ash Street building.

"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 City Council President Sean Elo-Rivera. "The proposed settlement, while not ideal, is the best business option available to the City. We will gain the certainty we need to gain stability for our employees and our finances. With that stability, we will be able to move forward with transparency to ensure lessons are not forgotten, all while maintaining the opportunity for accountability for any crimes committed against the City."

Importantly, the settlement excludes real estate broker Jason Hughes, whose potentially criminal conflict of interest was unknown to City Councilmembers when they approved the lease-to-own transactions of the buildings. In addition, if new details emerge indicating criminal activity on anyone's part in the transactions or their aftermath, the justice system will be unimpeded by the agreement.

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.

Chief Operating Officer Jay Goldstone led the City's negotiating team, which acted on direction from the City Council as to terms and conditions of a settlement. The City Council will hold a public hearing and consider ratification of the settlement on Monday, June 27.

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