26 VOL. 5 ISSUE 8
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City Botched High-Rise Deal from Acquisition to Renovation, Investigation Finds One of three forensic investigations into the city’s disastrous acquisition and renovation of a downtown high-rise for city staff found the city’s real estate bureaucrats and contractors piled one mistake on top of another throughout the three-year debacle, leading to its evacuation in January for asbestos violations. Jesse Marx and Lisa Halverstadt Voice of San Diego A review of San Diego’s handling of 101 Ash St., a downtown high-rise that was evacuated in January following asbestos violations, identifies a number of problems with the purchase of the property and hints at possible legal action against some of the environmental contractors involved in the disastrous remodel. Written by a law firm that’s already advising the city on asbestos litigation, the 40-page document offers a glimpse into San Diego’s flawed handling of its real estate. Though not complete, the review was released Wednesday ahead of the Aug. 6 City Council meeting. It is technically one of three reviews being conducted by outside legal experts who are looking not just into the acquisition of the property, but the financial liabilities now hanging over it and the role of the sellers. From start to finish, 101 Ash St. went haywire under Mayor Kevin Faulconer’s watch. But in a statement, he told VOSD that he asked for the acquisition review “because City Hall has a very long and troubled history with managing its property and sweeping problems under the rug, and I didn’t want that culture to persist.” Faulconer’s term ends at the end of the year and rather than pass the debacle along to the next administration, he considered it “my responsibility to share information with the public and propose corrective actions that get to the root of the problem,” he said. Although the report doesn’t explicitly say so, it strongly suggests that the original sin at 101 Ash St. was Real Estate Assets Director Cybele Thompson’s failure to seek an independent appraisal and assessment of the building’s true condition upfront. No one from the city formally inspected the property before the City Council agreed to a 20-year lease-to-own deal totaling $127 million. Doing so would have likely shown that the HVAC, plumbing, electrical, lighting and ceiling systems at the former Sempra Energy headquarters were all in need of major repair. The city’s remodel would later explode in scope and helped shake loose the asbestos that triggered the attention of the San Diego County Air Pollution Control District. Instead, Thompson and her supervisor, Ron Villa, who recently resigned over this scandal, Local News > LocalUmbrellaNews.com
relied on documentation provided by Cisterra Partners, which brokered the deal between the city and the property owner and which never occupied the building itself. The reports in the city’s due diligence files only touched the surface of the nearly 50-year-old building’s true condition. One report, from 2014, warned that anyone wanting to do extensive renovations on site should develop an asbestos abatement plan in accordance with U.S. Environmental Protection Agency rules. Another stated that its findings shouldn’t be used to satisfy environmental regulations and other laws. These were red flags. But when Thompson pitched a lease-to-own agreement to the City Council in late 2016, she described the building’s condition as excellent and simply in need of a power wash. The description came directly from one of the seller’s reports, which was based on a mere visual inspection of the site. Once the city took possession of the building in early 2017, it hired design and architecture firm Gensler to figure out how exactly its 1,150 employees would fit inside the building. The firm, and by extension the city, learned in the process what they should have known from the onset — and what the building’s former /LocalUmbrellaMedia
tenant, Sempra Energy, had already told the public. In November 2014, Sempra real estate chief James Seifert testified to the California Public Utilities Commission that part of the reason they’d left 101 Ash St. when the lease expired was because the property needed at least $3 million in capital repairs to keep it operational and upwards of $15 million in the event of an earthquake. He said the building was functionally obsolete and “to remove the existing asbestos and rebuild the impacted space was estimated to cost $16 to $25 million.” The transcript of Seifert’s testimony, as NBC 7 reported in April, was available online through a Google search. Yet the review notes that the city learned of it when a media outlet reached out for comment earlier this year. Seifert’s testimony is at odds with how the principal owner of the property portrayed the building as the deal was being brokered. In his first written offer to the city, Sandy Shapery said he’d spent “approximately $40 million in maintenance, upgrades and improvements” since buying 101 Ash St. in 1993 and there was “no anticipated capital improvement work expected within the next 10
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