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Roundtable: San Diego tries to turn the page on 101 Ash Street

 July 29, 2022 at 12:00 PM PDT

S1: It was supposed to be a home base for city workers , but instead it's wasting public dollars. This week , San Diego is trying to close the Money Pit at one on one street. So what's next for the vacant downtown high rise ? I'm Matt Hoffman , and that's our focus This Week on KPBS roundtable. Hello and welcome to KPBS Roundtable. I'm your host , Matt Hoffman. And joining us to dive into one of San Diego's biggest financial blunders are those who have covered it closely. Investigative reporters. Geoff McDonald from the San Diego Union-Tribune. Voice of San Diego's editor in chief Scott Lewis and KPBS metro reporter Andrew Bowen. They're all here and we really want to thank you all for your time and joining us. We've already done a lot of reporting over the years , all of you. But let's focus on what happened with Tuesday's settlement that supposedly is ending this whole lease to own saga. Let's get your views on why this move by the city is so significant. Starting with Jeff McDonald from the U-T. Jeff , kind of a simple question , but maybe not a simple answer.
S2: Once it once it came back the second time to the council docket , you might remember it was withdrawn last month , less than an hour before the start of the council meeting a month ago , allegedly to give more time to the officials and the public to digest what the mayor had put forward , because it was pretty complex. So the question became , well , if it does come back , they're going to make sure and have the votes. So I think I think it was pretty clear they had at least five votes , which is what they needed.
S3: Perhaps the most ambitious , complicated real estate development project that they've ever undertaken. And it's going to be fascinating. Even during the meeting Shawnee over River , the council president said that he wanted city staff to come back at the end of October with a plan for how they would do that. And he said , Look , I know there are a lot of people who think we can't pull this off , but I'm going to hold us accountable to do that. It's a bet that I'm willing to take. So not just a settlement of this lawsuit , but a vast and very complicated undertaking has just begun to reinvent the whole core of the city.
S4: You know , the most of the public commenters were against it. And many of them have said they think that the mayor and the city council members who supported this deal will pay a price come Election Day. That might be true. I still don't really have a good sense of how many people in San Diego are actually aware of one and one ash and the whole scandal behind it. It's a complicated story and it doesn't make for great , you know , quippy attack ads. And we just had an election where one candidate tried to make it a campaign issue. Barbara Barry Running against Todd , Gloria and Bridget. Gloria , very hard over his vote in favor of the lease to own deals that a deal that ended up being so disastrous for the city. And Gloria still won that election by almost 12 points. So it doesn't seem to me like a topic that is top of mind when voters will be going to the ballot box. But we'll see.
S1: And speaking of Gloria , let's hear from him. He's the one who made the final arguments for why the city should spend that $132 million to move on from this entire issue. Here he is explaining that situation to council members during public comment on Tuesday. Simply put , all of the other options are far worse. Let me explain. The best case litigation scenario is that we prevail in our lawsuits and void our leases on these two buildings. This would mean paying tens of millions of dollars to restore 1 to 1 ash tree after the botched remodel. Only then to handle the keys over this hysteria to profit from that would also mean that we would need to find and lease commercial office space with the over 800 city employees that currently work in Civic Center Plaza. It would mean that after all of this , the city would have nothing to show for it , not the buildings , nor the valuable land they sit on. And Andrew , as you alluded to a little bit earlier. Not everyone is buying the mayor's reasoning there.
S4: Councilmember Marni Von WILPERT said that she would support settling the lawsuit at some point , but just not right now. She seemed to think that if we were to wait a little bit longer , that more information might come out that , you know , from all of the concurrent investigations that are going on , and that that might bolster the city's legal case and maybe get the city a better deal , because they'll have more leverage to extract more favorable terms from the building's current owners. Councilmembers Vivian Bray , now and Monica Montgomery Step cast the other two no votes. And they sounded to me at least more opposed to this settlement on principle. Moreno in particular , has been very vocal about this issue. She says , you know , the city was defrauded and that the people who orchestrated this should pay and were , you know , we shouldn't be paying them. And they seemed just the three of them less concerned about losing this. The lawsuit at trial , given the city attorney's confidence in the city's legal case and also less interested in actually owning the buildings , which , as Scott alluded to , is part of a larger plan to redevelop the civic core of downtown.
S1: Voice of San Diego's Lisa Halberstadt is another local reporter who has done a lot of work on this story , a lot of investigative work. Scott , we know that you were her editor many times on those stories. So let's talk about money here. $132 million. You guys mentioned it before.
S3: They really wanted those buildings. Let's be clear. So 80 million of that is going to come from cash that the city is going to free up from its capital improvement project funds. If you think about a bunch of buckets half full or three quarters full across the city for projects , new parks , libraries , bathrooms that are five part roads all across the city , they all have these buckets that are , you know , not full. And if they get full , they can start to build those projects. And that that whole thing is called the Capital Improvement Projects Fund. They're going to take cash from that. And they say it won't delay or hurt the progress of those projects because they'll just borrow money for those projects. It's a significant amount of money. And it's going to it's going to have , you know , I think , ripple effects around the city budget for a long time. But again , I think it drives home the fact that they really wanted these buildings and that they're very bullish on that. They even used as their proof that they can pull something like this off the sports arena saga , which I would never use yet as an example of their ability to do vast redevelopment projects of city owned land. However , they they think it's going to work out. And so that's what they're embarked on. And again , I think it is just a vast undertaking that they've decided to to embark on. And and it's going to be very costly , but they've already made essentially $132 million installment on it.
S1: And in just a little bit will soon get to maybe what the city is going to be doing with those two buildings. But let's bring back in Jeff McDonald from the San Diego Union-Tribune. Jeff , your story this week , it gets into the debate over whether this was the right move or not. Former city attorney Mike Aguirre , he was behind a losing effort to try and stop this , at least temporarily. And the current city attorney , Martha Elliott , she was against that.
S2: When I say both sides , I mean Aguirre , who represents the taxpayers suing the city in an unrelated case to these votes by their council on Tuesday. And Elliott was convinced he would prevail in court. So she wanted an opportunity to win in court. I want to go back to the $232 million , however. There's a footnote in one of the attachments the city provided that notes that they're borrowing the money to pay this $132 million. The repayment could cost as much as $207 million. So they didn't talk about that during the meeting the other day. But we reported that a couple of weeks ago after reading some of the fine print in the reports that the mayor's office put forward. So it's going to be a lot more than $132 million. And the Civic Center Plaza also needs up to $60 million in. So this this acquisition of the city is is going to cost a lot more than what they agreed to spend the other day. Also , the settlement is only a partial settlement , both the cases brought forward by the city. The settlement really is hysteria development and it's lenders capital of any liability in the case and pays off the leases 100 cents on the dollar. But it remains as defendants , you know , real estate broker Jason Hughes and a number of contractors that performed work on the street building. So those cases are going to persist in court and we'll see where those go. Also , the taxpayer case brought forward by Aguirre and SEVERSON is moving forward and set for trial in January as well in a separate courtroom. So the vote from the council this week has no bearing on that case , although we can presume the city might go in and ask for a dismissal on that based on the the vote this week. We'll still have to see what happens.
S1: Andrew , go ahead.
S4: And Matt , I think it's also important to talk just as much about what the city is giving up with the settlement as it is what it's getting out of it. A big part of the reason city attorney Mara Elliott did not support this deal was that it bars the city from ever suing the other parties in the settlement in the future , even if we discover new information about how Sestero might have been acting in bad faith in the deal or , you know , future arguments that might bolster the city's position. We won't be able to go after them in court. So that was an important part.
S3: Remember , the city's case is that there was a criminal level conflict of interests with this , that their real estate advisor , Jason Hughes , who had volunteered for the city and was advising them on this deal , had a conflict of interest because he had a contract with the sellers , the landlords of these buildings , that if the city made this deal , he would give 45% of the profits. If they didn't , he would give he would have to pay 45% of their their losses. So that's a conflict that the city says is not you know , is obviously against the law , in their opinion , and thus should mean that the whole deal is voided. Now , that's the basic case against Susteren. So it seems odd that they would have that case and still pursue it when Sister is the other party to that action literally was the one that paid Jason Hughes what he was paid. And so why they would settle that case and say it's fine there , but we're going to pursue the other party to that same conflict of interest , I think is is a mystery to me. And I think at the heart of maybe why Marty von WILPERT said , like , I'm up for settling it. But there is a also criminal investigation going on. We just saw was more significant than we thought perhaps the last couple of weeks because of some filings the district attorney has made and how interested she is in this in this conflict of interest or alleged conflicts of interest. And so why don't we just wait and see what might happen , as Andrews said , what kinds of things might be released so that we can decide if if our leverage is a little bit stronger and maybe we can buy these buildings. Because , again , she even said , like , I'm looking forward to redeveloping downtown , too , let's do it. But we might be able to go a little bit more leverage , might be able to get a better deal. And they were like they they dismissed that concern and went forward and bought it as if.
S1: And then just like how you guys have brought up this idea of some criminality here for San Diego Mayor Todd Gloria , he brought up that same issue. Here's more from his public testimony.
S3: Now , I recognize that the proposed.
S1: Settlement agreement before you today. What satisfy anyone's thirst for vengeance , mine included. It's been hard for me to even get to this point , given what we were told then versus what we know now. But make no mistake , the proposed settlement that you're considering today does not foreclose the opportunity , told anyone criminally accountable for their role in this affair. And Jeff , you brought up the name Jason Hughes earlier. He's a real estate broker that played a big role in this original transaction.
S2: They both said that they had been deceived , that these were bad actors and they were going to recover all of the city's moneys that they expanded wrongly under these fraudulent deals. This was what the mayor and the city attorney said in June of 2021. Mayor Gloria changed course at some point and decided settling the case would be better. His claim is that the the certainty provided by resolving the cases with the stereo and CGI capital outweigh the cost. Although the cost is incredibly significant , it's three times what the building was worth or appraised at , you know , five , six years ago. Mr. Hughes , his lawyers say that he looks forward to his day in court. He's done nothing wrong. He alerted Mayor Faulconer and a number of top aides , I think as many as six all told that he intended to seek compensation. I'm not sure that's the same thing as saying , hey , I'm going to make $9 million off these two deals. But that's their position. And according to Mr. Hughes , his legal team , he looks forward to his day in court.
S1: You're listening to KPBS roundtable. I'm Matt Hoffman. And our guests this week are Geoff McDonald from the Union-Tribune , Scott Lewis from Voice of San Diego , and Andrew Bohn from KPBS News. And so this definitely begs the question , how did we get here ? We know that this all started with the city trying to find space to do the people's work. One on one Ash Street was supposed to be the new hub for city staff.
S4: Jeff can correct me if I'm wrong. When city staff that they had been leasing this building and nobody had moved in yet and people were starting to wonder why the city city staffers went to the city council and told them that the cost of all of the repairs for this building was way more than what they had previously estimated. And they gave the council , I think , three options. There was a pretty complete renovation , medium reservation , a renovation and a more modest one. They went with that full renovation , I think , because they thought it would save the city money in the long term and it would , you know , create more space for all of these city employees downtown. What happened next was that the contractors dislodged asbestos into the air. It had been occupied by more than a thousand city employees. The city had to evacuate them , you know , immediately because they were all in danger. And ever since then , you know , it's been unoccupied. You know , all of the details about the financial dealings and the overpayment. And , you know , we paid way more than what it was appraised at the structure of the lease to own deal. And why it was made that way are all very damning. But I think we also have to remember that those thousand plus employees are now back working in the really awful , drab , dilapidated office buildings that they were before. One on one ash became a thing. And so the city is long term in the long term , still facing this very important question of how they're going to create space for all of their employees to actually do the city's business , in particular downtown.
S1: And , Jeff , we know that you're also keeping some tabs on some of those people who were evacuated from that building. We know that their story is long from being over.
S2: They called a press conference as recently as yesterday to say that , hey , if the city is willing to pay off the white collar financiers like Sister and its lender , then they should be more than willing to stand up for the workers who were exposed to asbestos. Right now there are about 55 , 56 plaintiffs. Those cases are going to go forward. They've sort of been on hold while this financial issue has been litigated and there may be more claimants to come in the future. I asked I asked the lawyer representing that that batch of plaintiffs what kind of damages these guys have experienced. He said one guy had a spot on his lung and he and his family are , you know , frightened to death that that's going to be something other guys have been exposed to , to asbestos , like covered in dust and apparently breathed in. They said in one example , Guy breathed in 30 years worth of asbestos of what an average person might consume in a couple of days. Yeah , that's not going away at all. That's just beginning. And that's likely to cost the city millions of dollars. Maybe. Maybe tens of millions.
S1: Who knows ? Yeah , that's going to drive that number up in this total settlement. And something I want to bring up with you guys , Andrew alluded a little bit earlier to sort of the public reaction that's been happening. What are you guys hearing from your audiences ? And we can open this up to anyone who wants to jump in here.
S3: I think it's attractive to a lot of readers as a as a concern about taxpayer dollars and obviously accountability. It's also an interesting mystery. There's there's a bunch of sub dramas and interesting questions we still don't have the answers to about why different things happened along the way. And I think and now there will be a new audience for this this big gamble the city is making on its ability to pull off this giant redevelopment again that they've committed to. And so I think there's there's a lot of reasons to be interested in it , not the least of which is the $80 million or the 132 and the interest in change that Jeff mentioned going forward to purchase these two pieces of property and what that means for other projects and priorities in the city. And as much as they deny that it'll have stress on those on those projects and priorities , you just need to look at any park and know that it's not up to standards and it's not ideal at all. And , you know , taking $80 million from the funds that that help those things be rebuild is not going to help either. Now , that said , as Andrew said , the Civic Center core really is an embarrassment to the city of squalor and dreadful buildings. And , you know , you did a great piece the other day about the old California theater right there across the street. There's a lot of potential in that core area of downtown , and perhaps we could look forward to the benefit of that. So we'll see. There's just a lot of anger about the missteps that got into this. So what Jeff just described was this this other part of the scandal , which is that the city went in as its own sort of contractor and and did something that contractors know they can't do , which is disturb asbestos. And these old buildings have asbestos. They're built into the walls. And why that was allowed to happen , how that was allowed to happen , whose fault that was is a significant mystery ongoing as well. And frankly , the only reason we know about any of this , about Jason Hughes's money and about all of the the profits that were pulled from this because of the scandal that that the asbestos kicked up and and the early reporting that Jeff and others did that to kind of bring scrutiny on this , because we wouldn't have known any of this without the fallout from that. And it was just as big a screw up as you can have. And again , cast doubt on the city's ability to pull off these kind of giant projects.
S2: What I think bothers some people that I'm hearing from is that , you know , redeveloping the downtown is obviously a terrific idea and long overdue. I'm just not sure they are convinced this is the best path forward to achieve that goal , that they're separate , and that the mayor linked these two things in a way that benefited him by not having to testify at trial going forward with this settlement , when the development of the downtown , there's no hurry for that. That's a years long project that hasn't even begun planning.
S1: And as we sort of wrap up here a little bit , let's look ahead. I mean , we know that the city is going to be buying these two buildings , but as Scott , you guys also alluded to , what's going to happen to them ? Do we know if they were ever going to be usable or is it going to be up for redevelopment ? Scott , we'll start with you here.
S3: They said they're coming back with a plan in October. They're very clear that they're going to tear them all down. That's what they want to do. You know , we can be as mad as we want about that. That's what they're doing and they are planning on tearing it down. I think the city attorney said something like , why would you buy a building that's uninhabitable ? They don't want to inhabit it. They want the building so they can tear it down again. Their ability to do that is in question and I think not something they've shown they've been able to do ever , frankly , that's one we've seen so far as the the Mission Valley redevelopment CSU has done. They basically just had to take that from the city through a vote of the people and a purchase. So it's not something the city has proven it can do at all.
S4: The city hall itself isn't particularly accessible or welcoming to people who want to go to city council meetings. And then in the background of this , we also have the Regional Planning Agency. See SANDAG that wants to build a central train station somewhere downtown. Catty corner to these properties are two blocks of real estate that are owned by the state of California. The state already has a development partner selected for that redevelopment. It's unclear exactly what they're planning. But our mayor , Todd Gloria , has a lot of connections in state government , and I think he'll likely try and coordinate that project since , you know , with the city's redevelopment plan , since those two properties are so close together.
S1: And , Jeff , we know that you have a lot of sources on this story.
S2: But I tend to agree with Scott that they do plan to entertain RFP , put out request for proposals from developers to build them a new city hall and , you know , include some affordable housing and and other amenities. So I think that probably will happen. But I think we're talking five , ten , 15 years at the soonest. So I think that's what will happen to the property as far as the litigation. I think that's going to trickle forward. I know that the the Aguirre team , they want to go after the defendants in the cities , in their case against the city and Sestero for the back rent that the city paid. I think it's about $24 million that the city paid for a building that was unusable under the same legal theory that they put forward in the in their initial complaint. So that case is not going away unless , of course , they the city is able to convince a judge that it should be tossed out based on these new developments.
S1: And Andrew , one final question. It's going to be going to you here. We know that there's an opportunity cost to all this $132 million. It can address a lot of pressing needs.
S4: So $132 million would not solve all of our infrastructure problems. But it's definitely nothing to sneeze at. It could do a lot. It could fund all of the city's current spending on homelessness for four and a half years in terms of shelters , storage facilities and all that outreach work that they're doing. As Scott said , you know , the city has said repeatedly this the shuffle , the budget shuffle that they're doing to kind of get this cash in and replace it later with future borrowing is not going to delay any capital projects. But I expect , you know , the media and the public will be watching very closely to make sure that's true.
S1: Well , we're going to have to end our discussion there. I want to thank you all so much for being here , Andrew Bowen from KPBS News. Scott Lewis from Voice of San Diego and Jeff McDonald from the San Diego Union-Tribune. You can listen to KPBS roundtable any time as a podcast. I'm Matt Hoffman. Thanks so much for listening and we'll be back with you all next week.

101 Ash Street in Downtown San Diego. Aug. 21, 2020.
Shalina Chatlani
101 Ash Street in Downtown San Diego. Aug. 21, 2020.
The city of San Diego strikes a deal that allows it to move on from years of legal fights over the asbestos-tainted high-rise that was supposed to be a new hub for city workers.

KPBS reporter Matt Hoffman hosts a discussion on a major turning point in the botched real estate deal involving the downtown high rise office building at 101 Ash Street and the neighboring Civic Center Plaza. Guests include San Diego Union-Tribune investigative reporter Jeff McDonald, KPBS metro reporter Andrew Bowen and Voice of San Diego editor-in-chief Scott Lewis.