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Audit finds failures in multi-million dollar deal for San Diego's 101 Ash Street

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Posted at 5:07 PM, Jul 23, 2021
and last updated 2021-07-23 22:42:19-04

SAN DIEGO (KGTV) - A new city audit is taking aim at the players behind the shuttered multi-million dollar taxpayer-funded 101 Ash Street deal.

“I'm surprised by how honest it is,” said former San Diego City Attorney Mike Aguirre. He spoke to ABC 10News on Friday about the audit’s findings. Aguirre is involved in a corruption lawsuit against the City over the lease-purchase agreement.

“At this point the case against the City and City officials and Cisterra and the people that perpetrated this is getting more and more powerful and at some point, I have to think that the criminal people are going to step in and say that we've got to look at this and see what really happened,” Aguirre added.

RELATED: San Diego City Attorney sues to void 101 Ash Street deal, citing anti-corruption law

For much of the last five years, the building has sat empty after problems were discovered, including asbestos.

The auditor found that there was a serious lack of policies and oversight that caused the city to miss or skip key steps in the acquisition and allowed the prior City Administration to leave out or misrepresent key information about the acquisition when presenting them to the City Council and the public.

The audit reports that the former Mayor's Office used an uncontracted advisor, commercial real estate broker Jason Hughes, that had significant influence over the Ash building and another acquisition and that we now know that the seller paid the city's advisor $9.4 million on the two transactions.

Former Mayor Kevin Faulconer is now running for California governor in this September's recall election. On Friday, his press team sent ABC 10News the following statement:

"The City of San Diego had a long-term need for additional office space and while the intention of purchasing a building was sound, the execution of this deal was flawed. We’ve recently found out a major reason why: the city’s outside real-estate expert was playing both sides of the transaction, he did not disclose this relationship or the millions he made on the transaction. Mayor Faulconer started a forensic audit to get to the bottom of this and stopped all payments to the seller. He continues to fully support the City’s sustained efforts to hold accountable anyone who wrongfully profited off of taxpayers."

“He can blame it on his advisor but he's the person that ultimately made the decision to move ahead,” said Aguirre.

The audit also found that the City Attorney's Office did not consistently document and present to the City Council the legal risks of the contracts to acquire the buildings.

City Attorney Mara Elliott filed suit in June to void the deal and recoup millions of dollars in losses. On Friday, a representative from her office referred ABC 10News to a seven-page letter that it sent to the auditor. Part of the letter reads:

“…the Audit reflects an incomplete investigation in some respects, makes certain unfounded or misleading conclusions, does not include recommendations that will truly address certain Audit findings, and offers one recommendation that is neither feasible to implement nor productive.”

The auditor made recommendations to help ensure that the city follows best practices when acquiring major buildings. Some of those recommendations include establishing clear roles and responsibilities for city departments involved in the acquisition process and requiring that all contractors or advisors on real estate transactions have a signed contract with the city.

Attorney Michael Attanasio sent an email to ABC 10News on Friday night on behalf of his client, Hughes. The email reads in part:

"With respect to Kevin Faulconer’s latest misleading statement, it appears that political ambition is getting in the way of the truth. Jason fully disclosed to Faulconer and his top aides that he would be compensated by private parties. What’s more, Jason’s only role was to help develop the structure for the deal; he had nothing to do with Faulconer’s decision to proceed with the deal or with Faulconer’s subsequent disastrous decision to botch the building’s renovation and thus render in uninhabitable now for years on end."