Omertà, San Diego Style – OB Rag

norma d monkeysBy Norma Damashek / NumbersRunner / April 27, 2022

Let’s pretend we’re hotshot detectives in a Netflix blockbuster about a real estate deal gone bad … really bad.  The action takes place in San Diego, where most every city official — past and present — is hell-bent on burying the evidence.

An apt name for our show is “Omertà, San Diego style” (a code of silence about criminal activity and a refusal to give evidence to authorities). But prepare yourselves: this whodunit is a true story about real perps, real victims, real consequences, and a labyrinth of backroom deals, tangled networks, secret handshakes, and a really convoluted chain of events.

As icing on the cake, Omertà has a star-studded cast of characters whose private/public perversions, criminal negligence, gross incompetence, deception, dereliction of duties, coverups, and relentless assaults on the public welfare are guaranteed to knock your socks off.   Now let’s do what TV detectives do.  On a big posterboard we’ll pin up a rogues’ gallery of names, faces, and traces of evidence linked to the villainous activities in question.  And then try to connect the dots.

So far, here’s what our rogues’ gallery looks like:

EXHIBIT A: the centerpiece of this true crime procedural is a 21-story steel frame, concrete and glass high-rise office tower in the central business district of downtown San Diego.  In its heyday it housed the world headquarters of Sempra Energy (parent company San Diego Gas & Electric).  Today it’s a building of ill-repute known simply as 101 Ash Street.

Backdrop: in late 2016 the city of San Diego entered into a lease-to-own agreement with the owners of the 101 Ash St building, Cisterra Partners, a local real estate development company.  By September 2020, the city had paid more than $23 million (in monthly increments of $535,000) to lease the building.  The city spent an additional $40 million on upgrades, maintenance, operating costs, and legal expenses, even as the building sat useless and empty.

EXHIBIT B: All we want are the facts (just the facts, ma’am).

  1. The city was well-aware that 101 Ash St. contained decades-old asbestos.  But the city chose not to perform its own inspection to determine the extent of contamination.
  2. City officials also chose not to call for an independent assessment of the building’s various systems before signing a lease-to-own contract with the seller Cisterra.
  3. Instead, the city accepted a “property condition assessment” submitted by a firm hired by the seller.
  4. The Cisterra assessment was “based on a Site visit, in which AEC (consultants)performed a visual, non-intrusive and nondestructive evaluation of various external and internal building components… not a building code, safety, regulatory or environmental compliance inspection.”
  5. The Cisterra consultants gave the building a passing grade.
  6. City staff was instructed to tell the City Council that the building would only need “a $10,000 power wash” before workers could move in.
  7. In reality, $66-$115 million in repairs were required to make 101 Ash St. safe and habitable.
  8. The lease with Cisterra stated—upfront–that the city would take the building “AS-IS” and that the “LANDLORD (Cisterra) SHALL HAVE NO RESPONSIBILITY OR LIABILITY” for repairs of any known or unknown defects with the building.
  9. In 2016, the City Council went along with a motion by then-Councilmember Todd Gloria to approve a 20-year lease-to-own contract with Cisterra.

EXHIBIT C: Warnings to the Mayor

  1. An independent report on the building’s automation systems (March 2019) found that “Many of the temperature and duct static pressure transducers have been removed, relocated or are damaged beyond repair,” rendering the heating system useless…”
  2. And worse–the consultant stated that “If there had been a fire, there was no way to isolate it.  We went to the City and told them that the fire system was no longer functioning the way that it was designed.”
  3. Later in 2019, a contractor in charge of renovating the vacant office tower warned the mayor and city officials about serious problems with the building’s water and sewer infrastructure and fire alarm system.
  4. Nevertheless, Mayor Faulconer and his senior aides recklessly moved 1,000 city workers into the 101 Ash Street building, hiding behind spurious documents falsely attesting to the adequacy of the building’s safety.
  5. Within a month, the County Air Pollution Control District declared the building unsafe due to asbestos contamination and shut it down.

EXHIBIT D: Lawsuits and Investigations

  1. The city now confronts dozens of legal claims by city employees and contractors alleging exposure to asbestos.
  2. The city is suing Cisterra and real estate broker Jason Hughes for defrauding the city over secret fees swept into the $128 million lease the city signed.
  3. The city has sued CGA lenders, whose investors have countersued the city.
  4. The city is negotiating settlements with lobbyist Chris Wahl.
  5. The city is being sued for illegally indebting the city without a public vote and the fraudulent waste of public funds.
  6. The city, Cisterra, and previous owner Sandor Shapery are being sued for concealment of facts that enabled a one-sided real estate deal.
  7. The investment management firm is countersuing the city for violating the terms of the 101 Ash St. lease.
  8. District Attorney Summer Stephan is conducting criminal investigations into 101 Ash St. dealings.  Subjects include Jason Hughes and Cisterra, among others.

EXHIBIT E: Private sector players in this true crime procedural (in alphabetical order)

CGA Capital, a Maryland-based corporation providing debt and equity capital for “credit net lease real estate transactions” for corporate and government agencies.  CGA provided the loan for Cisterra Development’s purchase of 101 Ash St. in January 2017.  Cisterra then created a lease-to-own agreement with the city of San Diego, assigning responsibility to the city to pay off the loan with monthly lease payments to CGA $128 million over 20 years.  By September 2020 the city had ceased payments.  CGA sued the city for defaulting on the loan.

Chris Wahl, prolific political fundraiser and chief executive at Southwest Strategies–one of the most successful public relations/crisis communications/government affairs/lobbying firms in San Diego—with direct access to top officials in city government.  For example, in the summer of 2015, Wahl met personally with Mayor Kevin Faulconer, chief of staff Stephen Puetz, director of Real Estate Assets Cybele Thompson, and Deputy COO Ron Villa to promote city leasing of 101 Ash St. on behalf of the building owner Sandor Shapery.

Earlier this year, in mediation efforts on behalf of his client Cisterra, Wahl had private meetings with city attorney Mara Elliot, Mayor Todd Gloria’s chief of staff, and the city’s COO Jay Goldstone.

Cisterra Development, San Diego private real estate developer.  Impressive company portfolio includes new downtown corporate headquarters for Sempra Energy (completed in 2015), as well as Sorrento Gateway, Gateway at Torrey Pines, Biogen IDEC Research Campus, 7th & Market (home to new Ritz Carleton Hotel), Carmel Valley Corporate Center, Peregrine Systems Campus, and the San Diego Padres Tailgate Park.

In mid-2016, Cisterra purchased 101 Ash St. from owners Sandor Shapery and Doug Manchester for $72.1M, predicated on an explicit understanding that the city would promptly buy or lease the building from Cisterra (aka double escrow–“the simultaneous purchase and sale of a real estate property involving three parties: the original seller, an investor (middleman), and the final buyer.”)

An additional $5M was quietly tacked on by Cisterra for a tenant improvement loan plus $14.4M more for undefined fees, bringing the total loan amount to close the 101 Ash St. deal to nearly $92M.

Although the building had recently been appraised at $62 million, then raised to $67.1 million, Cisterra commissioned yet another building appraisal (unearthed and revealed only recently) that came in at $92 million–conveniently folding in Cisterra’s extraneous lobbying expenses by inflating the size of the loan charged to the city.  The deal with the city closed in January, 2017.

Doug Manchester, controversial public figure, influential developer, former owner of the San Diego Union-Tribune, and Mayor Faulconer’s largest donor.  In 2015, Manchester purchased 49% of 101 Ash St. from Sandor Shapery for $20 million (suggesting the building’s true appraised value at around $40 million).

Shortly thereafter, Manchester met with Mayor Faulconer to promote city purchase of the building and set up a walk-through of the building. “Dear Kevin and All…Thank you for your time yesterday…Sandy (Shapery) and I look forward to your tour on the 27th. Warmly, Papa Doug.”

But it would be the kiss of death for Faulconer to do public business with Manchester.  According to Cybele Thompson, when CFO Mary Lewis promoted outright purchase rather than lease of the property, this was his response: “(Faulconer) said something along the lines of, you know, ‘Mary, I know you’re no political genius, but imagine the optics of me writing a check to Doug Manchester for this building. You know, he’s the biggest Trump-loving, gay-hating, womanizing’ — he went on kind of a tirade about Doug,” Thompson said. ‘So how could I possibly be seen writing a check to him?’”

It is said that, Manchester may have sold back his minority share of 101 Ash St. to Shapery prior to the Cisterra acquisition, for certain taxation benefits.

Jason Hughes, commercial real estate broker.  In 2015 presented himself as an unpaid adviser to the city of San Diego to broker a 20-year lease-to-own transaction between the city (buyer) and Cisterra (seller) of downtown’s Civic Center Plaza tower.  The deal was overseen by city real estate director Cybele Thompson, Mayor Kevin Faulconer, and City Attorney Jan Goldsmith.

By 2017, Hughes had walked away with $9.4 million in compensation paid by Cisterra for his work on both the Civic Center Plaza deal and its carbon-copy lease-to-own transaction at 101 Ash St.  Hughes’s huge fees were silently rolled into the loans (i.e., charged to the city) and expertly obscured in public records.

Jason Wood, Cisterra Development principal, played a key role in structuring the transition and development of Sempra Energy Corporate Headquarters out of 101 Ash St. and into a new $165 million, 16-story office building overlooking Petco Park.

Shortly before the 101 Ash St. deal was struck, Wood played a key role in the lease-to-own deal between Civic Center Plaza and the city.  He was able and willing to “rig a formula” to deceive San Diego’s debt management director Lakshmi Kommi and others about the $1 million buffer and $10 million payoff to Jason Hughes that Cisterra embedded in that lease proposal.  Cisterra successfully netted unreported millions in that transaction.

In 2016, Wood continued to work his magic in the 101 Ash St. transaction and could confidently assure his associates: “We made a deal today with the City…using the same lease as [Civic Center Plaza]… The Mayor signed off today and we hope to have council member briefings and buy-in by the end of the week. Committee hearing will be in 2 weeks then City Council hearings with lease execution in November.”

Wood made $1.3 million when the deal was sealed.  Cisterra’s chairman Steven Black collected over $4 million.

Sandor Shapery, longstanding downtown developer and owner of 101 Ash St. for more than 20 years before negotiating unsuccessfully to sell the building to the city (2014) with an asking price of $100 million.  The following year, Shapery sold a 49% share in the building to local hotel developer “Papa” Doug Manchester for $20 million (imputing the building’s value at just over $40 million).

A couple of years later, Shapery bought out his minority partner for $25 million.  Although protesting his innocence in the local press, Shapery may have hooked up as a silent partner with Cisterra as the city’s 101 Ash St. landlord.

Steven Black, Chairman of Cisterra Development and Manager of a Delaware limited liability company called 101 Ash, LLC (created at the end of 2016 and owned by Cisterra )–the official owners of the 101 Ash St. property.

Black’s substantial development interests in the city’s recent real estate deal for a two million square foot mixed-use project at Tailgate Park are temporarily on hold.  He has been convinced to lay low and wait for the noxious 101 Ash St. winds to blow over or at least die down.

EXHIBIT F: Public sector players on the city payroll in this true crime procedural (in alphabetical order)

Cybele Thompson—Director of San Diego’s Real Estate Assets Department, appointed by and answerable to Mayor Kevin Faulconer.  Her team was instrumental in securing a similar lease-to-own deal for the Civic Center Plaza.

In 2016, Thompson perpetuated the myth that the 101 Ash Street building was in excellent condition and required only a $10,000 cleaning, caulking, and pressure wash of the exterior.  She was aware that city staff had been working for months on a deal to purchase the building and that a direct purchase could save $17 million over the cost of a lease-to-own arrangement.  But she yielded to heavy pressure from the mayor to promote the fiction that the timing of the deal made a direct purchase all but impossible.

Thompson arranged for Jason Wood (Cisterra) to lobby Todd Gloria to promote the lease-to-own arrangement that Mayor Faulconer had privately endorsed. She resigned from the city in August, 2020.

Jan Goldsmith, San Diego’s City Attorney from 2008– 2016 (and, curiously, one of the most protected figures in San Diego politics, running a close second to former mayor Jerry Sanders).   He oversaw and signed off on Cisterra’s lease-to-own scheme to transfer office space in the Civic Center Plaza building to the city.  He was still in office when the spitting image proposal for the now-notorious lease-to-own proposal for 101 Ash St. was being readied for city attorney sign-off.

Purportedly, Goldsmith issued a confidential memorandum defining terms and risks associated with Cisterra maneuvers , which is not, so far, publicly available.  It appears he’s getting off scot-free.  Not true for his successor, current City Attorney Mara Elliot.  She is now juggling the hot ball of wax inherited from Goldsmith and must answer for his sins of comission and omission in addition to her own.

Jay Goldstone, Chief Operating Officer appointed by Mayor Todd Gloria.  In behind the scenes attempts to protect the mayor and other city staff, Goldstone responded to meetings and communications with Cisterra lobbyist Chris Wahl and Cisterra’s chairman Steven Black to advance a settlement and/or strike a deal between the city and these private sector actors in the 101 Ash St. legal morass.

Goldstone saw fit to retract some of the sworn testimony he gave in a lawsuit deposition related to his role in facilitating the lease-to-own agreement between the city and Cisterra operatives.

Johnnie Perkins, San Diego’s ex-deputy chief operating officer of Infrastructure and Public Works (2019-20), was assigned by Mayor Faulconer’s COO (Kris Michel) to oversee building renovations on the 101 Ash St. albatross.  He witnessed asbestos screwups by subcontractors.  He heard complaints and warnings about “an obsolete heating and ventilation system, corroded sewer piping, clogged asbestos tests, a whistleblower raising red flags, a flawed fire system the fire marshal never signed off on, and an unrealistic timetable driven by significant political pressure.”

He was a lobbyist, advocate, and past president of San Diego Fire-Rescue Foundation, so what could induce him to remain silent about the harm his fellow workers and buddies were facing inside that noxious building? What blocked his ears to the city fire marshal’s warnings of the about the lack of safety for over 1,000 city employees being moved into the building per instructions from the mayor’s office?

Kevin Faulconer, Mayor of San Diego (2014-2020), jumped on the opportunity to expand working space for city personnel once Sempra Energy vacated their headquarters in an Ash Street tower conveniently adjacent to City Hall.  But a glitch emerged: the building was owned by Sandor Shapery but Doug Manchester was a minority shareholder.  It was not politically feasible for Mayor Faulconer (much less for councilmember Todd Gloria) to engage in public business with Manchester.

The game of deception was on.  Faulconer’s reasonable desire to acquire adequate space to conduct city government devolved into a chain of events that are revealing the innermost dirty secrets long embedded in San Diego political life.

Kris Michel, COO appointed by Mayor Faulconer and perennial go-to person (fabled woman behind the throne?) for past decades of San Diego mayors.  Michel was ultimately responsible for overseeing renovations and improvements in the 101 Ash St. building and in early 2020, as problems mounted, assigned the task to Deputy Chief Operating Officer of General Services Alia Khouri and fellow Deputy Chief Operating Officer Johnnie Perkins.

Mara Elliot, San Diego’s first female City Attorney, took office two months after the City Council approved the 101 Ash St. lease-to-own agreement and 10 days before  Jan Goldsmith’s name was crossed off the final lease document and Elliot’s signature added.

At the time the 101 Ash St. contract was signed (true also for the mirror-image Cisterra contract for the Civic Center Plaza building), San Diego City Charter Section 225 required a “full and complete disclosure of the name and identity of any and all persons directly or indirectly involved in the application or proposed transaction and the precise nature of all interests of all persons”.

Elliott (but not Goldsmith) is being lambasted for violating Charter Section 225 by failing to confirm that all of the people who benefited from the lease (specifically, Jason Hughes) were properly disclosed.

Mary Lewis, the city’s CFO from 2008 to 2017, oversaw the city’s $3 billion annual budget and managed city departments of the Comptroller, Treasurer, Debt Management, Risk Management, and Financial Management.

Lewis, the city’s most qualified financial expert, opposed the proposal to acquire 101 Ash St. through a lease-to-own arrangement when the city could opt for a less expensive straight purchase arrangement (saving $16 million).  She and other senior staff members (COO Scott Chadwick, Deputy COO Stacey LoMedico, Assistant COO Ron Villa, Director of Real Estate Assets Cybele Thompson, and Chief of Staff Stephen Puetz) were reportedly met with fierce opposition by Mayor Faulconer, who was determined to choose the Cisterra option of a lease-to-own arrangement.

Mike Zucchet, once a city councilmember and for the past 13 years the General Manager of the Municipal Employees Association–the city union representing over 4,000 city employees and one of the most ardent supporters of the 101 Ash St. lease-to-own deal.

Zucchet was rewarded for his vigorous advocacy of the 2016 Cisterra lease-to-own deal.  He was appointed to a prized position as commissioner on the San Diego Unified Port District Board.  And in the blink of an eye he’s became Chair of the Board, obvious conflicts of interest notwithstanding.

Fundamentally disturbing is the fact that Mike Zucchet (like Johnnie Perkins) folded to political pressure to cynically betray his fellow city workers.  He closed his eyes and turned his back to the dangers surrounding city staff in a building plagued by floating asbestos, electrical malfunction, and fire system failures, putting his personal interests–and those of previous mayor Kevin Faulconer and current Mayor Todd Gloria–over and above the health and safety of people he presumably serves.

Ron Villa, former Assistant Chief Operating Officer–long in charge of 101 Ash St. acquisition and renovation–resigned in mid-2020 in the midst of mounting accounts of health and safety violations in the building.  All the while, the city was making rent payments of $18,000 per day for a vacant and dangerous building.

Villa–along with Cybele Thompson—bowed to direction from Mayor Faulconer to advise city councilmembers that the Cisterra lease-to-own option was the only feasible choice they had.

He went much further than that to demonstrate his loyalty to the mayor’s interests over the public interest.  In March 2018 he responded to city worker complaints about the building safety: “I hear you. I heard every single complaint that was brought because [the City’s Asset Manager] shared with me every single complaint. The reason why it took so long is there was no way for us to break the lease and we would have been held liable for all of that. Now, that is over a $1 million. Is that worth everybody’s whatever? Maybe, maybe not. The fact of the matter is there is a cost to that and we would have been in litigation over that.

Stephen Puetz, former chief of staff for then-councilmember Kevin Faulconer.  In 2012 he managed Carl DeMaio’s losing campaign for Mayor.  He then managed Faulconer’s successful campaign for mayor.  In 2014 was appointed chief of staff by Mayor Faulconer.  He was the mayor’s point person in the city’s 101 Ash St. lease-to-own transactions (particularly with Southwest Strategies lobbyist Chris Wahl and Jason Hughes).  In his deposition for a pending lawsuit concerning 101 Ash St., Puetz has acknowledged that he  routinely deleted text messages from his phone that involved official city business in that matter.

This whodunit takes an odd twist with the appearance of Puetz’s wife Diana Palacios, who had previously worked as an aide to Councilmembers Carl DeMaio and Scott Sherman.  One year after Puetz became Faulconer’s chief of staff, Palacios was hired by Chris Wahl’s lobbying firm Southwest Strategies to lobby both Mayor Faulconer and her husband, the mayor’s chief of staff, on behalf of assorted clients, including the San Diego Padres.  She is now the VP of Public Affairs for the Padres and lobbies city officials on Petco Park issues (e.g., the city’s recent Tailgate Park agreements).

Todd Gloria, current San Diego mayor, has been trying to lay low in the face of the 101 Ash St. tsunami.  (He is scheduled to be deposed next month in a taxpayer lawsuit.)  In 2016, after a superficial walk-through look at the building, then-city councilmember Todd Gloria reported his impression of the condition of the 101 Ash St. building “…it’s extremely well maintained.”

Based on meetings arranged for Councilmember Gloria and his chief of staff Jamie Fox with Cisterra lobbyists Chris Wahl and Jason Wood… coerced by city staff force-feeding of Mayor Faulconer’s orders… armed with the assurance that mention of LGBT-antagonist Doug Manchester had been expunged from view… and, above all, gullible enough to swallow the deceptive package whole hog, Gloria took the lead and made the motion to approve Cisterra’s lease-to-own deal.

To this day he takes no responsibility for his bad judgment and passive acceptance of spurious information.  “From the beginning,” he claims, “the public and the members of the then-City Council, including myself, were deceived.”

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Our rogues’ gallery has been pinned up.  You’ve been introduced to the players.  But the final episode of this whodunit has not yet been written.

Who’s the chief culprit? Who should be punished? Locked out of office? Sent packing? Lose city contracts? Pay the city back for damages and expenses?

Are the mayor and city council complicit or simply inadequate… over their heads… no match for the fraternity of big boys who own our city?

Is it just a systems problem? Does the problem lie in our “strong mayor” system, in which the chief operating officer (aka city manager) and all department heads answer directly to the top official, the mayor?  Was it better when they answered to a full complement of elected councilmembers and (by extension) to the general public?  We remember that bad deals were done under the old system.  Were they this bad?

The San Diego public is ready for a proper, grand scale, town hall meeting to take stock of where we are and where we’re going.  In fact, we’re more than ready. We’re entitled to one.