Former San Diego Mayor Kevin Faulconer is subpoenaed in high-rise deal

Former Mayor Kevin Faulconer has been subpoenaed to appear for a deposition next month as part of San Diego’s legal effort to cancel the lease-to-own deal for the longtime Sempra Energy headquarters at 101 Ash St.

Faulconer first recommended the lease to the City Council in 2016. He said that the transaction would save $44 million by consolidating hundreds of city employees into the 19-story high-rise.

Instead, asbestos and other issues prevented the city from occupying the building for all but a few weeks, and the city spent tens of millions of dollars to rent, maintain and renovate the vacant office tower.

City Atty. Mara Elliott, who approved the lease in the early days of her term, is suing the seller, its lender, a real estate broker and others to try to throw out the city’s lease-to-own contract, arguing that an advisor to Faulconer was paid millions of dollars by the seller in the transaction, which she said is a violation of the public trust and of anti-corruption laws.

The city also is being sued by a resident who asserts the lease is illegal because it was not approved by voters. And San Diego County Dist. Atty. Summer Stephan has opened a criminal investigation into the transaction.

Faulconer ran unsuccessfully for California governor in the September recall election against Gov. Gavin Newsom. He has said he may seek the governor’s office again next year.

The two-term mayor was subpoenaed by attorneys representing real estate broker Jason Hughes, who was billed as a volunteer advisor but who later disclosed that he was paid $9.4 million in fees for his work on the Ash Street and Civic Center Plaza leases.

Faulconer and his top aides have said they did not know Hughes wanted to be paid for his role in the leases. Hughes disputes that.

“I subpoenaed him because I want the truth,” Hughes’ attorney Michael Attanasio said of Faulconer.

Hughes’ attorneys have released a letter he wrote to the city’s top real estate official in 2014 that says Hughes “would seek to be paid customary compensation from any other parties” in future city transactions. It appears to be signed by Cybele Thompson, then-director of real estate assets.

The city has no record of the document, an affidavit filed by a district attorney’s office investigator says. Thompson has said that she does not remember signing it but that if she did, it was at the direction of the mayor’s office.

Real estate experts consulted by the San Diego Union-Tribune said the $9.4 million that Hughes collected for the two leases — $5 million for the Civic Center Plaza and $4.4 million for his Ash Street work — was up to 10 times a normal commission.

San Diego attorney Edward Chapin, who represents Faulconer, said his client would agree to the deposition.

“Yes, former Mayor Faulconer will of course testify to his recollection of facts regarding Mr. Hughes’s involvement with the city of San Diego,” Chapin said by email. “As he has consistently relayed in public statements, former Mayor Faulconer had no knowledge of payments to Mr. Hughes until it was reported in the news media.”

If Faulconer is deposed Dec. 15, it will be the first time he has been questioned under oath about the Ash Street lease, one of several real estate deals approved by his administration that were singled out in an unflattering audit this year.

The former mayor has resisted answering questions about the Ash Street transaction — before or since leaving office nearly a year ago. In June, just after Hughes acknowledged that he collected $9.4 million in fees for the two leases, Faulconer issued a brief statement: “As I said last year when I launched an investigation into this project, I continue to strongly support any efforts by the city attorney to identify and bring forward anyone who wrongfully profited off taxpayers.”

Faulconer joins City Auditor Andy Hanau and former Chief Operating Officer Scott Chadwick as deposition subjects. The transcripts of those depositions have yet to be released to the public.

Former Chief Financial Officer Mary Lewis also received a subpoena, court records show. She is scheduled to be deposed next month.

The subpoenas and depositions are part of the discovery process in multiple lawsuits generated by the 2016 deal to acquire the Ash Street building.

The idea was to house 1,100 or more city employees in the building after Sempra Energy vacated the property in 2015, but asbestos and other problems made the high-rise unsafe to occupy.

The city auditor’s office issued a report in July criticizing city officials for failing to conduct an independent assessment of the property’s condition before recommending the lease to the City Council.

The contract called for the city to take over the property “as is.” It also said taxpayers would be liable for any improvements, repairs or other issues, including hazardous materials such as asbestos.

The audit also criticized the mayor’s office for relying on the seller’s representations that the property was in excellent condition. An outside review released last year said the building needed $115 million in upgrades before it could be safely occupied.

Hanau’s audit also said city officials should have ensured that Hughes had a signed agreement with the city, spelling out his role and making sure that he would not profit from any deals he recommended to the mayor.

In her lawsuit against the Ash Street sellers and Hughes, Elliott said the real estate advisor violated state conflict-of-interest rules that prohibit government officials from personally earning income from deals in which they are involved.

The city attorney’s office is trying to set aside both the Ash Street and Civic Center Plaza deals, alleging they were illegally negotiated because Hughes had a secret arrangement with Cisterra Development, the seller in both deals.

Cisterra has defended both leases as good deals for the city. It also filed a countersuit against the city early this year.

Last month, the district attorney’s office raided Hughes’ home and downtown office, as well as Cisterra’s headquarters in Carmel Valley, seizing computers, bank records and other documents as part of a criminal public-corruption case.

The 101 Ash St. property was first appraised in 2016 at $62 million. Weeks later, just before the City Council agreed to acquire the building, it was reappraised at $67.5 million.

The agreement approved by the council called for the city to pay more than $200 million for the high-rise over 20 years, including $128 million in lease payments and millions more in renovations and maintenance.

In 2015, the year before Faulconer recommended the lease to the City Council, real estate developer Doug Manchester acquired 49% of the Ash Street property from majority owner Sandor Shapery for $20 million.

The district attorney’s office has declined to discuss the status of the criminal investigation, except to confirm that the search warrants were executed last month.