Cisterra & Hughes Mislead City COO About Undisclosed Payments

One of the principals of the City’s landlord company and the City’s pro bono real estate broker mislead the City’s then-Chief Operating Officer about $9.4 million in undisclosed payments made to the broker on two controversial building leases.

Kris Michell testified on Thursday that during the time she was the City’s COO, she asked Cisterra Development principal Jason Wood on two separate occasions whether they paid the City’s broker, Jason Hughes, in the transactions with the City, and that Wood twice denied having paid Hughes.

Jason Hughes, founder and CEO of Hughes Marino, a powerful real estate brokerage firm, had been serving as a volunteer real estate broker for the City since being appointed by then-Mayor Bob Filner in 2013.

Hughes had agreed to serve as the City’s real estate advisor “without compensation from any party”, as a letter from Mayor Filner confirmed at the time. Hughes remained in the position after Filner resigned in late 2013, and through the time Council President Todd Gloria served as Interim Mayor, and both of Kevin Faulconer’s terms.

As a broker, Hughes helped the City negotiate nearly identical 20-year leases between the City and Cisterra for the Civic Center Plaza building in 2014 and the 101 Ash building in 2016. Emails show Hughes interacted with City staff as their advisor and helped negotiate terms of the deal with Cisterra on the City’s behalf. None of those emails show that Hughes disclosed any profit participation in the lease at the time.

When the City executed the 101 Ash lease in 2016, City Attorney Mara Elliott failed to enforce the City Charter provisions of Section 225 which required full public disclosure of all parties with an interest in a contract with the City.  Cisterra did not disclose its profit agreement with Hughes when either of the leases were approved by the City.

Michell testified that she was under the impression that Hughes was not paid, and that Hughes did not dispute that assumption during a lunch meeting where she thanked him for his volunteer service to the City.

She also testified that she discussed with Hughes that he could not receive a City contract he sought to manage the 101 Ash renovation project because he had a conflict of interest for having helped negotiate the contract, even though he had not been paid, she told him.

Michell testified that Hughes did not dispute her assertion that he was not paid, furthering her understanding that he had not received any compensation in the lease deal.

La Prensa San Diego was the first media outlet to report in a September 11, 2020 article that two sources close to the 101 Ash deal maintained that Hughes had received a payment in the deal. Hughes ignored repeated requests for comment to confirm or deny that he had been paid.

In June 2021, Hughes finally disclosed that he had received a backend profit split with Cisterra when he was forced to respond to discovery requests in a City lawsuit over the 101 Ash building lease.

Hughes later disclosed a November 2014 letter he sent to the City’s then-Director of Real Estate Assets, Cybele Thompson, where Hughes expressed his interest in seeking “to be paid customary compensation from any other parties in the transaction.”

At the time of the letter, the City was negotiating the purchase of the Civic Center Plaza building. Although the letter explains that he “would seek” compensation, Hughes did not provided any other documentation disclosing to the City that he had actually signed a deal to participate in the profits of the transaction.

In April 2022, Cisterra principal Jason Wood admitted during sworn testimony in a deposition that his company had agreed to a profit split with Hughes. The profits were divided as 45% to Hughes, 45% to Cisterra CEO Steven Black, and 10% to Wood.

Cisterra later disclosed a January 2015 agreement between it and Hughes which outlined the 45/45/10 profit split, but the agreement only included the Civic Center Plaza building deal.

To date, no similar agreement has been disclosed that included a profit split on the 101 Ash lease deal.

Hughes and Cisterra have admitted that he received a fee of over $5 million on the CCP transaction and a fee of over $4.4 million on the 101 Ash lease deal.

The City filed a lawsuit to invalidate the two leases based on Hughes' undisclosed conflict of interest. Under state law, no one can participate in a public agency contract they also help negotiate. A conviction under those laws could be a felony and would invalidate the leases.

Mayor Todd Gloria announced last month that they City will consider a legal settlement that would resolve the lawsuits between the City, Cisterra, and Hughes, the City would purchase the two buildings from Cisterra for a combined $135 million, and would also indemnify Cisterra from other liabilities associated with pending lawsuits related to 101 Ash.

Gloria clarified that the settlement would not preclude any criminal actions against Hughes.

The Mayor's proposed legal settlement was set to be voted on by the City Council on June 27th, but was abruptly pulled just minutes before the meeting started.

This week, San Diego District Attorney Summer Stephan's office filed a motion in court to use documents seized from Cisterra's offices, as well as Hughes' home and office, in its ongoing criminal investigation. Cisterra and Hughes have claimed attorney client privilege over certain documents which the DA's office believes should be released.

The City Council is again scheduled to vote on the proposal at its July 26th meeting.

Castañares is the Publisher and Editor-at-Large of La Prensa San Diego. He is the 2021 winner of the prestigious Ruben Salazar National Award for Excellence in Journalism in Print presented by the California Chicano News Media Association, the oldest Hispanic journalism organization in the United States. He can be reached directly at <a href="mailto:art@laprensasd.com">art@laprensasd.com</a>.

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