Caught up

At the center of the conflict-of-interest scandal that likely prompted a top city official’s resignation, there are two big-dollar, big-name projects: Seventh and Market and Ballpark Village—the first a $481-million project encompassing nearly a full city block, the second a seven-acre development near Petco Park that, as planned, would include the largest Marriott Hotel on the West Coast.

According to online local-news organization voiceofsandiego.org, the developers involved in those projects, The Related Companies and Lennar, respectively, had financial ties to Nancy Graham, the now-former president of the Centre City Development Corp., which administers Downtown redevelopment on behalf of the city of San Diego.

Graham resigned last month, reportedly to care for her ailing mother, but as voice discovered, she had received income from Related and Lennar as recently as mid-2007 for work she did prior to coming to San Diego in 2005.

State and local laws require city officials to annually disclose all sources of income, which Graham failed to do for both the Lennar and Related payments. She also participated in contract-negotiation meetings on the Seventh and Market project, voice found, and discussions about significant changes to the Ballpark Village project.

Then there’s a third project, much smaller in scope but not in significance, that had been inching along during the past year despite major setbacks since it was first proposed in 2003. Ninth and Broadway (named for its location) is a 25,000-square-foot affordable-housing development that would, as planned, include at least 250 deeply affordable rental units, targeted for two populations desperately in need of more housing options: people displaced from Downtown’s shrinking residential-hotel supply and the growing service-industry workforce. At least 25 of the 250 would be so-called “supportive housing” units—housing that’s coupled with case management and other services to allow individuals, usually those who’ve been previously homeless, to live independently.

Ninth and Broadway is the second project Related of California (a subsidiary of The Related Companies) made a bid for during Graham’s tenure (Seventh and Market being the first). The developer was one of three out of an initial pool of seven that CCDC selected in mid-2007 to submit a formal proposal for the site. A 10-person committee, comprising seven CCDC staff members (not including Graham) and three outside advisory members evaluated the three proposals.

Jonathan Hunter, managing director for the nonprofit Corporation for Supportive Housing, served as one of the committee’s volunteer advisors. Related’s proposal, he said, was impressive, especially when it came to incorporating the supportive-housing element.

“It really stood out; really, it’s a very fine proposal,” he said. “However, it was very expensive, significantly over the subsidy level that CCDC had anticipated.”

Related asked for $27 million in direct financial assistance from CCDC. The selection committee’s runner-up, BRIDGE Housing, asked for a little more than $19 million.

Because affordable-housing developments don’t promise the return that market-rate projects do, developers have to cobble together funding from various state, federal and local sources. Financing problems are why two developers walked away from the Ninth and Broadway project between 2003 and 2006. In 2006, the city bought the land from developer Bud Fischer (the first to determine that the project was financially unfeasible), but Fischer included a condition in the sale: Something needed to be built there by July 17, 2011, and it had to include at least 188 units of affordable housing. If the city failed to deliver on that promise, Fischer has the option to buy the land back.

A Feb. 7, 2008, staff report to the CCDC Board of Directors’ Real Estate and Finance Committee recommends Related as the project’s developer, but it notes the selection committee’s concern about the $27 million subsidy.

“The selection committee suggests a four-month negotiation period… to reduce the subsidy amount to an acceptable level,” the report says—something Related believed could be done if the proposed three-level parking garage were cut down to two levels.

By July, Related had managed to whittle the subsidy request down to $23 million, but BRIDGE countered by adding 63 more units of supportive housing at almost no additional cost to CCDC.

Hunter said that including additional supportive housing units was an important change.

“San Diego is way behind most other cities in terms of adopting and promoting supportive housing,” he said, noting that San Francisco, one of the leaders in supportive housing, has 3,000 such units. Currently, there are 206 units of supportive housing located in Downtown San Diego.

In July, the next time the project came up for board approval, staff had changed their recommendation, asking that the CCDC board vote to enter into exclusive negotiations with BRIDGE. But at a committee meeting on July 16, Related and its development partner, Chelsea Investments, protested the decision.

“Chelsea/Related brought up that they wanted clarification about the selection process,” CCDC spokesperson Derek Danziger said. The board committee agreed that was a reasonable request and voted to push off selecting a developer until its next meeting on Sept 10. That was before Graham’s resignation and voice uncovering her income from Related. Last week, CCDC board chairman Fred Maas scheduled a special meeting for Sept. 10 to discuss an independent investigation into Graham’s conduct that’s being handled by an El Cajon law firm; it’s likely the board will postpone any discussion on the Ninth and Broadway project, Danziger said. The law firm hired by CCDC has said it will take about two months to complete its investigation.

“Our hope is not to unreasonably delay anything,” Maas told CityBeat, adding that the board needs to make sure all projects approved during Graham’s tenure—not only those involving Related and Lennar—are properly vetted in order to avoid problems later. (Update: at a press conference on Aug. 27, Maas told CityBeat that "the mere fact that Related was involved will create complications" for the project.)

Cory Briggs, an attorney who sued CCDC over the controversial Navy Broadway Complex project and who’s represented affordable-housing organizations and displaced residential-hotel tenants, expressed frustration over any delay to Ninth and Broadway.

“Nancy Graham’s illegal conduct is so infectious that it’s even holding up good projects,” Briggs said. While he agrees that an umbrella investigation is a good thing, proper oversight should have been in place to begin with.  

“I think it’s good that there’s scrutiny,” he said. “I don’t think that we should have had to wait this long to get it. Every project should get careful scrutiny when it’s going through the process.”

Ultimately, Ninth and Broadway is a study in just how comprehensive state and local conflict-of-interest laws are—when they’re properly applied. Intended to keep public/private contracts free from outside influence, the rules kick in as soon as a developer submits a proposal for a project—something that’s explicitly laid out in CCDC’s own guidelines: “California State law makes it illegal for public officials or their employees to participate in the making of a contract in which they are financially interested. The law defines the making of a contract as including responses to Requests for Qualifications/Proposals.”

The definition of “financial interest” isn’t limited to a public official benefiting from a project, said Stacey Fulhorst, executive director of the city’s Ethics Commission. “Let’s say you receive income from a company. [For one year], you can’t participate in a decision that will financially benefit that company even if you’re not receiving any money,” she said.

“Participating in a decision” can include something as minor as signing off on a staff report recommending that a developer be awarded a contract, which Graham did in February, Danziger confirmed.

“Influencing a decision, in our ordinance, is extremely broad,” Fulhorst said. “It includes providing information that could be used by a decision-maker to make a decision.”    

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