Chances are the city would never have bought 101 Ash St. if a developer had come to act as an intermediary. But this design has also laid the foundation for an incredibly messy situation, even in the canon of genuine heritage history in San Diego.
The city of San Diego has long been dealing with rental buildings to space out its painters. Many painters paint in the center of City Hall, but many do not, so the city’s rental arrangements are distributed.
Ten years ago, city leaders introduced a logo for the new City Hall complex, but the concept failed and the city began to renegotiate its leases. Then came here an opportunity. Sempra Energy, founded long ago in a skyscraper opposite the Civic Center, moved to the East Village and left its area at 101 Ash St.
Sandy Shapery, owner of the building, contacted city officials late in 2014 and next year would make lease donations ranging from $86 million to $110 million. The city leaders were intrigued, but the coming and going remained serious.
An offer, for example, included a 10-year lease and annual hiring increases of 3.5%. This would have forced the city to collect taxes on assets.
Another point of contentious: Shapery didn’t need to give the city the opportunity to own the construction at the end of the lease. By distributing invoices for many years, you may keep your tax obligations low. Shapery also sought to keep the furniture in his name.
The city has declined.
Then Shapery took a new spouse to the building. Developer Doug Manchester, the controversial and intensely political developer who had sold Union-Tribune, bought a 49% stake in 101 Ash St.
That’s a political problem. Manchester, supporter of Mayor Kevin Faulconer, however, his connection made the deal more difficult, not easier, because from the outside it seemed that Manchester would have a great salary shortly after Faulconer’s election.
“I think it was hard for the city to make a deal with Doug Manchester,” Shapery said. “It seemed nepotism or simply too close. And I think that was an inconvenience, although I saw it in the first place as a imaginable merit: we have the mayor’s ear.”
Then everything changed. Another developer entered the scene: Cisterra Partners. The company had recently reached an agreement with the city to help him hire and eventually own another skyscraper, the Civic Center Plaza Tower that has long housed the workplace of the San Diego City Attorney and others. Now he’s proposing that Shapery sell the assets to Cisterra. In turn, Cisterra would move the assets to San Diego through a 20-year lease.
After paying the rent for 20 years, the village would be the new owner. It worked on paper. The people accepted the agreement.
But when a primary renewal of uncontrollable assets last year, taxpayers found the hand so they could charge heaps of millions of dollars to give up or rebuild in a usable workspace.
The provision of the agreement guaranteed virtually this result because, as independent budget analysts concluded on Wednesday, the agreement “is terribly one-sided in favor of the owner.” An outside law firm also recently concluded that while securing a new area for their workforce, public servants protect owners from legal liability in the event of a problem.
And he did, in each and every step of the way. The burden of construction to the city’s long-term finances has a devastating scandal at City Hall. Today, nearly six years after the city first explored the acquisition of the property, we are told more about how discussions began and why.
Chances are the city would never have bought 101 Ash St. if Cisterra had come to act as an intermediary. But this design has also laid the foundation for an incredibly messy situation, even in the canon of genuine heritage history in San Diego. And it will be the duty of the taxpayers for years to come.
Before Cisterra got involved, the city still hoped to get favorable rents elsewhere. But officials changed their minds after the executive complex, some other construction near City Hall, underwent primary renovations and the owners made it clear that they intended to triple the rent.
The Real Estate Department will address 101 Ash St.
City spokesman Craig Gustafson said officials nevertheless reached an agreement with Cisterra in 2016 because the developer proposed “very amazing monetary terms for anything Shapery would have proposed.”
Critically, Cisterra went on to sell it for $72.5 million, which less than Shapery had filed last year. After adjusting inflation for two decades, the deal with Cisterra would end up costing about $127 million, according to the city’s indefinite budget analyst.
Excerpts from an initial legal review of the purchase, revealed to NBC 7, state that by acting as an intermediary in a primary real estate transaction, Cisterra had no incentive to read carefully about the genuine condition of the building.
At the same time, officials never requested an independent evaluation of 101 Ash St. and instead accepted cisterra’s claims and the owners that the construction was in perfect condition at face value. Some of the disclosure documents provided by suppliers were based on undeniable visual inspections of the site.
If officials had dug deeper, they would have discovered that the chimney protection of construction and other critical systems wanted to be repaired. A representative hired across the city now estimates that construction will require about $115 million in maintenance that can take up to 4 years.
Assets built in the 1960s, purchased in the 1990s through Shapery and housed for many years at Sempra Energy. In 2014, James Seifert, the company’s head of real estate, told the California Public Utilities Commission that component of explaining why workers were leaving construction that needed significant capital improvements.
This has been a wake-up call for anyone who wants to buy the property.
NBC 7 discovered the testimonial online. Still, Shapery and city officials said they didn’t know until this spring. Seifert’s statements were at odds with what Shapery had told the city in the past: that 101 Ash St. would not want primary innovations for a decade.
None of the reporters and lawyers looking closely at the deal have presented evidence to show Shapery, and by extension Manchester, intentionally misled the city. Shapery has long maintained that he provided all the documentation in his possession about the building’s true condition.
In early 2017, Manchester had no connection to the property. He bought 101 Ash St. for $20 million in 2015 and moved forward to promote his participation. On the same day the sale with Cisterra concluded, Shapery sent a check to Manchester for $25 million.
This would mean that Manchester earned about $5 million over an 18-month period, however, he told the Union-Tribune before this year that the maximum of his earnings were absorbed through experts and other unspecified costs.
Emails received through VOSD show Manchester’s dissatisfaction with the deal and recommend that he tried to disappoint the city as much as possible.
On 4 January 2017, a day after the cash replaced his hands, a contractor came over to say he wanted to plan a tour of the property, but Manchester had asked one of his engineers, a guy who in the past worked with Manchester. don’t go back to the building.
Shapery participated in the last hour of the day.
“I can only assume that Papa Doug is angry with the city and Mayor Faulconer because we couldn’t close the deal with the city when CisterraArray,” Shapery wrote. “I’m glad someone can do it because it makes a lot of sense. Besides, we’ve all made a profit.
Manchester responded to an interview request.
When asked about email sharing, Shapery said he didn’t remember. And when asked if he was willing to check his files, he refused. He said he was tired of talking about 101 Ash St., tired of hitting a dead horse.
“We did what we had to do,” he said. “I’m hiding something.”
Although Manchester did not have time to broadcast in the 2016 City Council talks, its monetary participation was no secret. The construction aspect shouted “Manchester Financial Group” to the public. There were also press articles in Union-Tribune, Business Journal and Reader that brought the connection between Shapery and Manchester.
At an assembly of the City Council’s planning committee in September 2016, elected officials, adding then city councillor Todd Gloria, emphasized genuine real estate asset manager Cybele Thompson and his supervisor, Ron Villa, on why San Diego should not simply buy the property.
Gloria received confusing and complicated answers.
Thompson, for example, stated that “a direct acquisition is not considered the most productive option for the city.” Villa cited “a temporary overlap” and claimed that a bond representative had opposed it.
In any case, Shapery and Manchester weren’t offering a straight-up purchase. Not to Cisterra. Not to the city.
At one point, Gloria asked how long it could take the city to build and remove the signage. There were smiles in the room.
Last week, when asked about Manchester’s donations to Faulconer over the years, Gustafson rejected any suggestion that the mayor in 2016 had tried to get a quick from the city council.
“Politicians have nothing to do with this transaction,” he said. “The stupidest way to secretly obtain the merit of a crusader contributor is to buy a construction bearing that taxpayer’s name.”
The total discussion could have faded in the brief public recollection if the structure component of the task had been absolutely out of control.
After learning that construction required much more work, officials returned to city council and secured an additional $30 million for a large-scale renovation in 2018 that they said would help space for more employees. Two years earlier, they had said the construction could use a high-pressure h and nothing else. He’s in a position to move into.
But over a roughly six-month period in 2019, the county documented 16 asbestos-related violations. Engineers and other employees who worked on the construction site, and who’ve since filed dozens of legal claims, allege the city tried to hurry the project along and got sloppy. A law firm preparing the city’s defense has put the blame on environmental contractors.
Apparently, everyone is or alludes to a dispute, adding the city.
Despite the ongoing embarrassment and the new costs to emerge, a Cisterra principal who cut the deal with the city and Shapery defended it. Jason Wood argued that having a single building that could house hundreds of employees, rather than paying multiple leases for facilities scattered around downtown with costs that could escalate in the future, was still a good thing and would pay off in the long term.
“People thank me for saving people millions of dollars over decades,” he said.
Wood recalls calling Shapery and Thompson in 2015 in the hope of replicating a lease that Cisterra had facilitated in the past at Civic Center Plaza. He described 101 Ash St. as a “win-win-win”.
But neither Shapery nor Thompson’s idea of an agreement were imaginable at the time; there was a sense of stagnation, Wood said.
Cisterra, however, is controlled to convince both sides to come up to the table and agree to a new arrangement. This fact, Wood said, shows that the developer was not a straw entity, as some have suggested. He, too, like Shapery, rejected the rate that his company had committed fraud in the transaction.
During the negotiation procedure and at the request of the city in 2016, Cisterra agreed to an allocation of $5 million for renovations. But emails received through NBC 7 show that the figure is a higher estimate because the city had not yet drawn up plans with its architects.
“The $5 million was just speculation based on new paints and carpets in construction and at a minimum (improvements for tenants) otherwise,” Thompson wrote in a February 2018 email.
In retrospect, Wood said, It is possible that Cisterra had provided the city with more than $5 million, if Thompson or others had asked for it. But they didn’t.
Still, James Parker, one of the lawyers investigating the debacle, revealed at a City Council assembly on Thursday that what looked like $5 million gains advantages, not exactly that. It’s more like a loan that is taken into account in the city’s rent payments.
“The lease included the legal responsibility to settle the assignment for tenant upgrades,” Parker said.
With this charge incorporated into construction plus an additional $14.5 million in other prices and charges, Parker warned that the value of the original $72.5 million construction label could have been closer to $92 million.
Sales and rentals of 101 Ash St. are now under scrutiny through outdoor lawyers, the city auditor, City Council members and journalists. At least two public servants lost their jobs.
After hearing Thursday’s presentations from officials and experts about one of the features you’d like in the future, the city council downloaded.
Councilman Vivian Moreno accused officials of hiding true ownership of assets at first and minimizing the risk of asbestos. He also called Cisterra a “straw seller” and cited a great lack of due diligence when buying the building.
“Taken together, this could not have been the result of mere incompetence or bad luck,” Moreno said. “This was a deliberate fraud.”
Moving forward, the options on the table range from essentially “do nothing” to “sell the property at a loss” to “walk away and let attorneys go to war.” Multiple City Council members have also asked if the city could demolish the high rise and build another in its place.
Moreno’s use of the word “fraud” in the same meeting was an important one because the lawyers who’ve looked at the lease have echoed what City Councilwoman Barbara Bry has been saying for months — that it’s completely one-sided and indemnifies the sellers for basically anything that happens on site.
As reported through a qualified real estate listing on VOSD in February, the city could break the lease if it can prove that dealerships did not disclose everything they knew about the actual state of construction beforehand. In other words, if there is fraud in the transaction.
Parker, however, warned against this public thought.
“This is a one-sided contract,” he said. “It protects Cisterra in full and a decision to claim that Cisterra committed fraud or that there’s some legal method to stop the payments because of dissatisfaction, which is very understandable with this deal, poses great legal risks for the city.”
Wood told VOSD that Cisterra might be willing to return to the negotiating table if the city was willing to negotiate rather than expect Cisterra to suffer all losses. However, he noted that, in the end, bondholders will have to receive a payment.
“I don’t have anything to give,” he said. “We don’t have any control over the bond financing. We don’t even get the rent checks. The rent checks go directly to the trustee of the bond holders.”
Councilman Chris Cate could have explained it better when he told his colleagues at Thursday’s meeting, “Everything is a fool.”
Lisa Halverstadt writes about the city and county governments of San Diego. Accept recommendations and questions about history. Contact her at [email protected] or 619.325.0528.
Jesse Marx is deputy editor of Voice of San Diego. He writes on the San Diego subway. Contact it by email or Twitter.
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