Kevin Faulconer

Fraud or Incompetence? Taxpayers Sue Over Botched $300 Million High Rise Deal

Former city attorney, others sue over 101 Ash St. fiasco, asks judge to halt any additional payments on 20-year lease or massive renovation.

Sempra Energy building at 101 Ash Street

As the city continues to grapple with the lopsided $300 million land deal that is 101 Ash St., a group of lawyers has decided to take matters in their own hands with a newly filed lawsuit against the former owners of the Sempra Building. 

On Aug. 18, former City Attorney Mike Aguirre and co-counsels Lawrence Shea and the law firm Girardi Keese filed a lawsuit against the former owners of 101 Ash St., alleging they failed to disclose the 21-story building’s true condition. The suit hopes to stop any additional payments to third-party broker Cisterra Partners until the deal is negotiated or an agreement is in place.

The condition of the building, by the time its renovation is completed, will be far from the move-in ready office space the city was promised back in 2016; instead, the high-rise was riddled with issues costing at least $150 million to repair before city office workers can be allowed inside.

Up until now, the city has rejected any talk about pursuing legal action against Sandor Shapery and Cisterra and its newly formed LLC, which negotiated the purchase and subsequent $127 million lease-to-own deal with the city of San Diego. The reluctance was in large part due to advice from outside attorneys that were hired to look at the misguided purchase, finding the city did no basic review of the property before signing its rights away.

In reports obtained by NBC 7 Investigates, the outside attorneys stated that the contract was so uneven in favor of Cisterra that legal action would likely fail and only siphon additional taxpayer money from the city. 

Since those reports surfaced, San Diego’s elected officials have looked to shift blame. 

A representative for Mayor Kevin Faulconer told NBC 7 Investigates that any questions about the ill-concocted contract should be directed to the City Attorney’s Office. 

An Aug. 14 memo from San Diego City Attorney Mara Elliott said she did not review the contract, as final approval came just seven days after she took office. 

“[The] transaction preceded my tenure as San Diego City Attorney, and I did not work on the matter as a chief deputy city attorney,” said Elliott in the memo sent o San Diego City Council member Barbara Bry. 

Now, the independent attorneys who have sued say they will fight the deal on the city’s behalf.

The lawsuit’s allegations are simple: Former owner Shapery and Cisterra misrepresented the condition of the building in order to compel the city to enter into the deal. And while the contract contained what reports obtained by NBC 7 found to be “strong exculpatory provisions” in favor of Cisterra, the lawsuit alleges that the city would never have agreed to the deal had it been made aware of the numerous building issues, including nonencapsulated asbestos, an old and underperforming heating and air system, an overtaxed auxiliary power system and fire safety issues. 

The lawsuit, however, does not address the fact that the city, according to outside reports obtained by NBC 7 Investigates, failed to conduct even cursory inspections. 

In fact, new emails obtained by NBC 7 show that the newly resigned director of the Real Estate Assets Department wasn’t even aware of asbestos inside 101 Ash, despite the fact that records of previous asbestos remediation had been provided before the deal was made, as well as public testimony stating the same.

“Our building engineer at 101 Ash St. has indicated that there is potentially asbestos located in the fireproofing (above dropped ceilings) at the floor decks, and Gensler observed a few soffits around the core that may contain asbestos (popcorn texture ceilings), however, there was no reference in the attached property condition report obtained during due diligence regarding asbestos,” wrote Cybele Thompson in a March 19, 2017, email to Shapery’s representative as well as Cisterra Partners.

“Can you all advise if you have any knowledge regarding existing asbestos and where it might be located at 101 Ash St.?”

Shapery’s lawyer Rick Polischuk responded: “Sempra maintained extensive records of its asbestos abatement, encapsulation and management going back to 1993, when it started abating and encapsulating asbestos in the building. Those records were provided to Cisterra during the due diligence period in a Dropbox that was created for this transaction. Additionally, I was asked by several people from the city during the numerous guided tours, including. I believe Cybele, if there was asbestos in the building. to which I responded affirmatively and mentioned that Sempra’s asbestos records were included in the due diligence.”

However, the taxpayer lawsuit filed by the private attorneys say that not everything was disclosed, and it wasn’t on purpose.

“The high rise developers who sold 101 Ash to the city are among the most savvy real estate tycoons in the city,” wrote co-counsel Lawrence Shea, who is also representing 35 workers who filed legal claims against the city for exposure at 101 Ash. “After decades of transactions, the city trusted them and relied upon their expertise in recommending this purchase.

“It turned out the building wasn’t at all suitable. In fact, it sits vacant because it’s unsafe, while the city continues to shell out millions. Had the true condition been known, this deal never would have been approved,” added Shea. 

In dueling op-eds in the San Diego Union Tribune, Councilwoman Vivian Moreno slammed the city and mayor for entering into a fraudulent transaction, saying the deal was “more fraud than incompetence.” 

Moreno urged that action be taken against the sellers and questioned the role of developer Doug Manchester, who owned 49% of the building. She criticized the city for failing to disclose Manchester’s role in the deal, especially considering the fact that he has been one of Mayor Kevin Faulconer’s top political donors. 

As cited by Moreno, Manchester’s partner Shapery also commented on Manchester’s role, calling Manchester a “detriment” during the deal with the city. 

In a companion piece in the paper, Faulconer wrote that the “buck stops” with him when it comes to the city’s flawed purchase. Faulconer, however, did not provide any details as to his direct involvement in the purchase, in which sources close to the city and mayor confirmed he was involved. In the op-ed, Faulconer vowed to fight to get some of the city’s money back by possibly going after contractors and others who may have played a role in the sideways sale.

But former owner Shapery said the city knew full well what it was getting into and, despite having documentation that asbestos was inside, still decided to move forward with a major renovation of the building, and that, because of that decision, the mayor and others are once again looking to play the blame game.

“I am very disappointed that people are using this situation to try to advance their political careers,” said Shapery in a statement. “The city entered a transaction with full knowledge of the facts concerning the Sempra building, with ample opportunity to conduct whatever inspections it chose, and did so on the advice of its own real estate experts and lawyers. I expect the city to live up to the agreement it made, and I intend to fight Mr. Aguirre’s frivolous lawsuit and any other effort to scapegoat me for the city’s decisions.”

In a separate statement, Jason Wood, a partner at Cisterra Partners wrote: “Cisterra has not been able to review the lawsuit and will reserve comment until a later time. As it relates to the 101 Ash matter in general, however, Cisterra fulfilled all of its obligations under its agreement with the city and, in the process, was fully transparent in all respects and delivered to the city all information about the building in Cisterra’s possession.”

And while Cisterra appears to be holding to its agreement, a representative for Faulconer told NBC 7 that the city is "pursuing all legal and financial recourses to recoup costs and protect taxpayers. The mayor has directed staff to bring the building seller back to the table — because an agreement where the public is taken advantage of is not an honest deal. The city will also hold accountable the contractors who worsened the building’s condition. Public-private partnerships are supposed to benefit all parties. That did not happen here."

This article was updated after Cisterra's Jason Wood and Mayor Kevin Faulconer's office sent statements for the story.

Contact Us