San Diego City Wire

San Diego's new city council and mayor will have to grapple with the fallout from a major debacle over a lease-to-buy property deal that likely will cost tens of millions of dollars.

The city has stopped making payments on the lease of 101 Ash St., which still stands empty downtown as the former Sempra Energy building is contaminated with asbestos.

Taxpayers could pay as much as $127 million in lease payments over 20 years on a building valued at only $62 million. Costs to clean up the building could reach $145 million.

The lease deal was the subject of a highly critical Office of the Independent Budget Analyst report, which described it as “horribly one-sided [in favor of the landlord] lease to purchase agreement that significantly constrains the city’s options.”

Questions are still being asked about the involvement of businessman Doug Manchester, who reportedly pocketed $5 million profit from the deal after buying a large share in the building prior to the signing of the lease-to-agreement. Manchester was one of the largest donors to former Mayor Kevin Falcouner, on whose watch the deal was crafted and signed. The deal required taxpayers to pay $535,000 a month in rent, or $18,000 a day, the San Diego Union-Tribune reports.

The then city council unanimously agreed to lease the 21-story building after current Mayor Todd Gloria offered a motion. But council members insist they were not given full information, including details of the appraisal and had no idea the building was riddled with asbestos. They were told that it would need a $10,000 power wash, according to the San Diego Union-Tribune.

City staff, it has emerged, did not know of the need for asbestos abatement, which would have been clear if a detailed inspection was carried out. According to IVN San Diego, consultants employed by the previous tenant described the building as "functionally obsolete" due to the need for repairs and asbestos abatement.

Former owner Sandor Shapery has argued that work by contractors employed by the city may have disturbed the asbestos.

San Diego's Chief Financial Officer Rolando Charvel sent a letter in September to Cisterra Development, the company that brokered the deal, stating the city was suspending rent payments.

Lawsuits have been filed, including one by contractors who allege they were exposed to asbestos and by former City Attorney Mike Aguirre, alleging waste of public funds and fraud.