Daily Business Report: Thursday, July 1, 2021
San Diego’s 101 Ash Street Saga Continues
Editor’s Note:
The endless saga of 101 Ash Street, with more dirty hands than imaginable, twists again with the city now wanting to completely void the deal, demand full restitution of every dollar paid out and filing lawsuits against everyone within arm’s length of 101. The city’s newest attack victim is Jason Hughes, who has now been added as a defendant to the city’s lawsuit against Cisterra Development. Cisterra paid Hughes close to $10 million for advice and counsel on both the Civic Center Center and 101 deals. The city’s charge against Hughes is that as former Mayor Faulconer’s “special volunteer for real estate sevices,” he should not have been paid by Cisterra.
Hughes issued a statement, which begins here:
For many years and through multiple City administrations, Jason Hughes has provided valuable strategic advice regarding the City’s real estate needs. Throughout all this time, Jason acted as an informal adviser and waived all leasing fees customarily paid by the landlord in such transactions. As one former Mayor recently said, Jason Hughes “has been an invaluable asset to the City of San Diego. Jason and his team have saved city taxpayers tens of millions of dollars – and for that we are very grateful.”
The facts about Jason’s role in the City’s acquisition of 101 Ash Street are simple, straightforward, and transparent. In 2014 Mayor Faulconer asked Jason to help the City with its potential acquisition of another property at Civic Center Plaza. Jason suggested a financing solution featuring a lease-to-own bond financing mortgage structure that would permit the City to avoid challenges in the public bond market while providing an immediate and long-term home for hundreds of City employees. Jason had no contractual agreement with the City, nor did he have a role in the City’s diligence or approval of the transaction. Jason was not compensated by the City on the Civic Center Plaza transaction, which was a huge success for the City.
Shortly after his initial involvement with Civic Center Plaza, Mayor Faulconer asked Jason to continue in his same role and on the same terms by assisting with 101 Ash Street. Once again, the Mayor looked to Jason as an informal adviser, and once again the City adopted the financing solution previously developed by Jason and used for the Civic Center Plaza transaction.
PHOTO: 101 Ash Street. (Photo by Google Maps)
The rest of Hughes statement is at the bottom of this report.
First Trolley rides Mid-Coast Extension
of the UC San Diego Blue Line
Transportation leaders and transit advocates from around the region gathered to witness the first-ever Trolley on the Mid-Coast Extension of the UC San Diego Blue Line. The milestone signifies that train testing is beginning and that the San Diego Association of Governments (SANDAG) is officially transferring responsibility to the San Diego Metropolitan Transit System (MTS) for operations.
The Mid-Coast Extension of the UC San Diego Blue Line Trolley is a priority project for SANDAG and will have a transformative impact on regional transit connectivity. The project will expand the current Trolley network to provide a one-seat ride from the U.S./Mexico Border all the way north to the University community. The extension will connect the two largest employment centers in San Diego – the University area and Downtown San Diego, serve UC San Diego which supports 75,000 students, faculty and staff, and provide health care access to the VA San Diego Healthcare System’s 84,500 Veterans.
Major construction for the 11-mile Trolley extension began in 2016, and the project remains on budget and on schedule to begin service in November 2021.
Chelsea Investment Corp. and Serving Seniors
honored by Affordable Housing Advocates
The collaboration between Chelsea Investment Corp. and Serving Seniorson the Mid-City Family and Senior Apartments in City Heights has been honored by Affordable Housing Advocates, a nonprofit corporation that supports affordable housing for the poor through legal advocacy.
This year’s award honors Chelsea and Serving Seniors “for excellence in affordable housing and community development,” and specifically cites the intergenerational 195 affordable apartments for low-income families and seniors now under construction at 4340 44th St., where San Diego’s Kensington, Talmadge and City Heights neighborhoods connect.
“We are thrilled to receive this award. We will display it proudly. We want to thank Affordable Housing Advocates for selecting us, and we are delighted to be honored with our longtime partners Chelsea Investments,” said Serving Seniors President Paul Downey.
Jim Schmid, Chelsea founder and CEO, acknowledged the collaboration with Serving Seniors which began 20 years ago with a 200-unit project in East Village. “Serving Seniors never thinks small and we’re honored to team with them again for the Mid-City Apartments,” said Schmid.
Attorney Grace Pollard joins Balestreri Potocki & Holmes
Attorney Gracie Pollard has joined the San Diego law firm of Balestreri Potocki & Holmes as an associate.
Prior to joining BPH, Pollard completed her externship in employment law at a local law firm, where she gained valuable experience advocating for clients. She also worked with creative individuals who could not afford legal services while she worked for a nonprofit focusing on intellectual property matters.
Pollard obtained her Juris Doctor from California Western School of Law and her Bachelor of Science from San Diego State University.
The law firm of Balestreri Potocki & Holmes is headquartered in San Diego. The firm provides comprehensive counsel to large and small companies across a wide range of established and emerging industries.
County Board of Supervisors approves $7.23 billion budget
The County Board of Supervisors adopted a $7.23 billion revised budget for fiscal year 2021-22 after public deliberations on Tuesday.
“This is a budget that meets the needs of all our residents,” County Chief Administrative Officer Helen Robbins-Meyer said, “… stretching, but maintaining a prudent and responsible fiscal position.”
A $7.03 billion recommended budget was presented to the Board on May 6 and called for a 7.3 percent increase. The board approved additional spending on Tuesday, adding $200.9 million to the budget. As a result, the revised $7.23 billion budget represents an increase of $681.1 million, or 10.4 percent, over last year’s. The revised budget also adds nearly 1,000 employees for a total of 18,782.5 staff years.
Tower 16 Capital Partners sells
Phoenix apartments for $30 million
Encinitas-based Tower 16 Capital Partners has sold IVilla Garden Apartments, a 214-unit multifamily project in Phoenix, for $30 million. The property was purchased by Tower 16 in February 2020 for $15.1 million in an off-market transaction. The new buyer is Tides Equities. The property is in the Westside submarket of Maricopa County.
Tyler Pruett and Mike Farley are co-founders of Tower 16 Capital Partners.
County Clerk’s ‘Marriage Hut’ earns national
recognition for saving weddings during pandemic
The San Diego County Clerk’s Office has been recognized by the National Association of Counties (NACo) with a 2021 NACo Achievement Award for innovative excellence in County Administration of Management. The Clerk’s office was recognized for transforming a vacant snack shop into the “Marriage Hut” in order to continue issuing marriage licenses and perform ceremonies during the COVID-19 pandemic.
The San Diego County Clerk’s office in a normal year issues around 25,000 marriage licenses. During 2020, under COVID-19 restrictions, the office issued 17,286 marriage licenses. The award‑winning “Marriage Hut” continues in operation today and is now a requested venue for couples to tie the knot in San Diego County.
LIGHT Helmets enters partnership
with Drew Brees and Football ‘N’ America
Carlsbad-based LIGHT Helmets, a manufacturer of football helmets, flag football and soccer headgear, and former NFL star Drew Brees have partnered together to help protect athletes at all levels and educate parents, coaches and players about the urgent need for head protection in flag football.
Drew Brees, Founder FNA, explained,
“Flag football is where I started, Football ‘N’ America (FNA) is my passion and identifying the best equipment available for the athletes was important to me,” said Brees. “The LIGHT SS1 earned the best impact and coverage results ever recorded by the independent helmet rating lab of Virginia Tech. My goal is to ensure the kids learn the game(s), have fun, and utilize the best equipment available. LIGHT provides that equipment and we are proud to partner with them.”
The LIGHT SS1 is specifically designed to reduce the risk of concussion for the players wearing the headgear and the other players on the field. The LIGHT SS1 headgear for flag football and soccer is made of advanced materials currently used in protective equipment for military, aviation and professional auto racing.
Synergy Orthopedic Specialists acquires
Encinitas Podiatry Group
Synergy Orthopedic Specialists, San Diego’s largest privately-owned orthopedic practice, has acquired Encinitas Podiatry Group, a podiatry practice specializing in state-of-the-art diagnostic and therapeutic foot and ankle services. Encinitas Podiatry, led by board-certified foot and ankle surgeon Dr. James Hatfield has been serving the North San Diego Coastal area since 1978.
Dr. Tyson Schmidthuber will join Synergy Orthopedics podiatric team and Hatfield is retiring. Dr. Jay S. Berenter will also treat patients for podiatry and foot and ankle procedures. Sports medicine orthopedic surgeon John “Andy” Grotting and Dr. Mark Schultzel, orthopedic surgeon specializing in shoulder and elbow surgery will also treat patients out of the new Encinitas location. The facility has 6 treatment rooms, an X-Ray, and on-site DME and Orthotics fittings.
Jason Hughes’ Statement, continued:
Similar to the Civic Center Plaza transaction, Jason was not involved in the City’s diligence, environmental review, or approval of the 101 Ash Street transaction, nor was Jason ever contractually engaged by, or compensated by, the City on this transaction. At all times, the City had multiple options available to it, and the City’s leadership ultimately decided to move forward with the purchase using the lease-to-own mortgage structure previously developed by Jason. In the end, hundreds of City employees – in the offices of Real Estate Assets, City Attorney, City Procurement and City Audit – were involved in vetting both acquisitions.
While continuing to waive customary leasing fees, Jason transparently disclosed to the City and several of its highest-ranking elected and appointed officials his intent to seek compensation from the private sector for his role in these transactions. Although Jason was under no legal obligation to make such disclosures in light of his unofficial role, he did so to ensure that his intentions were transparent and known to senior City officials. The disclosures were made orally and in writing, and the City formally acknowledged, accepted and signed off on Jason’s entirely appropriate intent to seek compensation.
On October 21, 2014, Jason emailed the City’s Chief Financial Officer, Mary Lewis, and the City’s Assistant Chief Operating Officer, Ron Villa. Jason explained in detail the financing solution he had developed, and transparently disclosed that because “this route is really like an investment banking solution,” he “would seek compensation for this role (obviously not from the City) …” On November 19, 2014, at the specific direction of Mayor Faulconer and Chief-of-Staff Stephen Puetz, Jason provided a letter agreement to Cybele Thompson, the City’s top real estate official. Once again, Jason transparently and in writing disclosed that the financing structure he had developed “would require [him] to play a few different roles due to the increased complexity and time demand.” “As a result,” the letter agreement continued, Jason “would seek to be paid customary compensation from any other parties” to a transaction with the City. Ms. Thompson signed the letter, indicating that the City had “read, agree[d] with, and accept[ed]” the proposal and the disclosure. These are only two of the many disclosures Jason made to the City regarding his intent to seek compensation for his role on the two transactions.
The fees ultimately received by Jason from Cisterra on both transactions were entirely in line with the written disclosures he made to the City, each of which specifically called out his intent to receive compensation from parties other than the City. Moreover, the fees were normal and customary as measured by industry standards for structured transactions in which the adviser accepts risk and develops an “investment banking solution” for the parties, as Jason specifically described his work to City leadership.
The ongoing controversy regarding 101 Ash Street has nothing to do with the structure or economic terms of the solution developed by Jason for the transactions between the City and Cisterra. The 101 Ash Street project is controversial only because the City has to this day failed to move employees into the building, even though two well-respected engineering firms concluded in separate Building Condition Assessment Reports that the building was in good condition. The resulting controversy was caused by the City’s regrettable decision to try to remodel a building – one that had only recently served as the worldwide headquarters for a Fortune 500 company – rather than allowing City employees to move in right away. And then the City made an even bigger mistake by self-managing and badly botching the remodeling project. Anyone interested in the real story of 101 Ash Street should focus their attention on the City’s abject failures once the transaction was complete.
Jason Hughes has never been paid one penny by the City or the taxpayers for the innovative structured financing solution he developed for the Civic Center Plaza and 101 Ash Street transactions. He has been transparent with the City from day one, and at all times he acted ethically and in full compliance with the laws and regulations applicable to the City’s business. Jason will vigorously defend his well-known and hard-earned reputation for integrity and transparent business dealings.
