San Diego City Council Reviews Audit Of Troubled Real Estate Deals
Wednesday, July 28, 2021
Photo by Shalina Chatlani
An audit into San Diego's string of bad real estate transactions received its first public hearing Wednesday, with members of the City Council saying big changes are needed to win back public trust.
The audit was prompted by the city's disastrous attempt to lease, and later purchase, the high-rise office building at 101 Ash Street. The city had hoped to move in hundreds of employees to consolidate its downtown workforce. But the move-in date was repeatedly delayed as the city discovered more and more problems with asbestos and the building's HVAC and electrical systems. The latest cost estimate for necessary repairs and improvements is $115 million.
The report found former Mayor Kevin Faulconer and his staff failed to follow best practices, such as requiring independent appraisals and building inspections, and withheld key information from the City Council.
"My 500 square foot condo had more inspection than these city buildings," said Councilmember Vivian Moreno, who chairs the council's Audit Committee. "After seeing all of this in this audit, it is absolutely critical that moving forward every proposed real estate acquisition before council needs to have a due diligence checklist."
A checklist to ensure each real estate transaction follows best practices is one of the audit's main recommendations. Mayor Todd Gloria has agreed to implement it.
Additionally, the audit found that city staff did not give councilmembers adequate time to review complex contracts, nor did they present real alternatives. Councilmember Joe LaCava acknowledged the safeguards recommended in the audit may slow down the city’s process of acquiring real estate.
"We may lose some good real estate acquisitions because we need extra time to make sure that we are doing things right, and a seller may not be willing to wait," LaCava said. "And I think that is okay. It is more important, as I said, to protect the city and protect the taxpayers than consummating a real estate deal."
City Attorney Mara Elliott last month announced that the city would ask a judge to void the lease-to-own contracts on 101 Ash Street and another downtown office building currently occupied by several city departments. Both deals were crafted under the advice of commercial real estate broker Jason Hughes.
The city's amended lawsuit followed revelations uncovered through subpoenas that Hughes, who had claimed to be acting as an unpaid volunteer, was actually paid $9.4 million in fees by the buildings' sellers.
While the audit's main focus was on 101 Ash Street, it also examined other questionable real estate transactions. Those include the city's purchase of a shuttered indoor skydiving facility in the East Village and a property in Kearny Mesa intended to be a firetruck repair yard that is also uninhabitable.
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