This post initially ran in the July 3 Politics Report newsletter, which is available exclusively to Voice of San Diego members. Become a member here.
Last week’s revelation that Jason Hughes had in fact been paid nearly $10 million through the city’s acquisition of two downtown high rises has made a lot of previously anodyne quotes retroactively hysterical.
It helps, of course, that neither Hughes nor the politicians who relied on his — wink, wink – “free” advice were not at all sheepish in talking about how great it was that an industry expert had agreed to provide his services for – wink, wink – “free.”
Hughes now acknowledges he was paid to put those deals together, and he says he told multiple high-ranking city officials that he would seek to get paid because the lease-to-own deals for 101 Ash St. and Civic Center Plaza were more complex than the lease renegotiations he had previously done gratis. Those city officials say they do not remember any such conversations.
Now that we know he was, in fact, being paid for acting as the city’s real estate adviser, let’s revisit the seven best quotes.
Kickbacks Prohibited
On the Hughes Marino website, Hughes’ company articulated its theory of the case in commercial real estate. By representing only tenants, it was fundamentally combating improper incentives rampant in the industry. Here’s how the company put it (emphasis mine):
“As a tenants-only firm, Hughes Marino is an anomaly first and foremost because we are fiduciaries to only one group: the companies, non-profits and municipalities that lease and purchase office space. We never represent landlords, and that keeps our interests totally aligned with our clients. Moreover, our brokers are prohibited from accepting kickbacks or vendor referrals of any kind (which is alarmingly prevalent in our industry). Hughes Marino clients can rely on our brokers to provide 100% objective, conflict-free, professional service.”
Not to put too fine a point on it, but in the Civic Center Plaza and 101 Ash St. deals, we now know that Hughes represented landlords, and accepted a “kickback” (his term), which the city attorney says misaligned his interests with those of his supposed client (the city).
About That Objective, Conflict-Free Service
The city ended up leasing to own 101 Ash St. after a complicated time in which city staffers were dispersed among multiple buildings, a problem for which real estate officials pursued multiple potential solutions. The city’s volunteer adviser offered his expertise on the matter in an email declaring the clear superiority of one of those options.
“It still is $25 million cheaper to do the 101 Ash deal over the next 20 years – and the city would own it,” Hughes wrote in an email obtained by Lisa Halverstadt as part of her January investigation of Hughes’ role in the deal. “Seems like a no-brainer.”
“Seems” is working overtime in that sentence.
The Good Ol’ Grateful City
It’s rare that a company’s testimonials page can elicit belly laughs, but then, it’s also rare that a city turns over its complex real estate strategy to a volunteer.
But here was former Mayor Kevin Faulconer’s take on the city’s experience with Hughes.
“Hughes Marino 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 Honorable Kevin Faulconer
My favorite part? He could have used any rough dollar amount to describe the city’s savings. Choosing “tens” though, after Hughes collected nearly $10 million, is a nice treat.
That Aged Well …
Not everyone’s quotes from the proposed arrangement make them look silly years later.
Former Mayor Jerry Sanders – or Darren Pudgil, the spokesman who delivered this quote – comes out looking sensible and humorous while reframing the whole debacle such that it’s hard to imagine this ending up any other way.
“The city gladly welcomes volunteers to help out at our libraries and recreation centers – but we don’t use them to conduct multi-million dollar transactions involving taxpayer money,” Pudgil told the Union-Tribune. “We appreciate Mr. Hughes’ offer, but this work is being put to bid where all experts in this area will have the opportunity to compete for it.”
There’s a valuable insight there: Part of the breach of trust here is that the promise of free labor is what allowed Hughes to skirt competitive bidding requirements for city consultants.
But here’s another petty insight: the U-T’s links to this story are broken, but it’s still alive on the Hughes-Marino site. Perfect.
… and That Didn’t
A few months after Sanders declined Hughes’ offer, then-Mayor Bob Filner took Hughes up on it.
“I appreciate Jason’s commitment to public service in this advisory role, which he will perform without compensation from any party,” Filner said in a press release, according to the Union-Tribune.
How lucky are we? Filner easily could have just said “without compensation,” but he went ahead and added “from any party.” Thank you.
Thank You for Giving Back
The early returns on the Filner-Hughes arrangement looked good. Hughes helped the city renegotiate one set of leases with a reported savings of some $15.8 million in the five years ending in 2018. A few months later they claimed another $4.8 million in savings on more renegotiated leases.
At a press conference celebrating those savings, Hughes explained why he was willing to work for free.
“Look, I look at this as not only as a civic duty, but a way to protect the rest of my clients in downtown,” he said. “And it’s not just the savings, it’s not just the commission I’m forgoing, it’s looking at all of my clients over the next five to 10 years, that we set the bottom where it should be, and not be inflated where everybody ends up spending a lot more money. So, we’re a very charitable company, we give to more than 70 charities every year, and this is one of our ways of giving back. So I’m proud to do it.”
The Legislative Fix to Dual Agency
During this time, Hughes was active in Sacramento, pushing legislation he hoped would correct the adverse incentives in commercial real estate that he felt ended up costing tenants money.
The laws requiring disclosure of real estate agents representing both sides of a transaction were insufficient, Hughes said in 2018 when a law he favored, proposed by Assemblywoman Lorena Gonzalez, had been shot down.
“Right now, in practice, it’s not being disclosed until typically the very end of the transaction when all the documents are signed, typically a stack of 100 pages and multiple signatures,” said Hughes.
He clarified why that’s a problem: Often, tenants just don’t know what’s going on.
“We think it’s really important that these tenants, who could be a dry cleaner, coffee shop all the way to the largest firms out there, at least be aware that there’s that potential for conflict,” Hughes said, according to an article first posted on Costar and that now lives on the Hughes Marino website.
The tenants could also be, say, the seventh largest municipality in the country (at least according to the officials within that agency).
Disclosure: Hughes was a donor to Voice of San Diego prior to 2018.
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