State judge recommends $4,000 civil fine for Ash Street broker, but senior official rejects proposal

The broker behind the city of San Diego’s notorious Ash Street lease, which is costing taxpayers hundreds of millions of dollars for a still unusable building, should pay a $4,000 fine for working both sides of the transaction, a state administrative law judge found.

But the top California Department of Real Estate official rejected the proposed penalty against Jason Hughes. He alone will now decide whether or how the San Diego broker should be disciplined.

“You are hereby notified that the proposed decision herein dated Dec. 21, 2023 is not adopted,” wrote state real estate Commissioner Douglas McCauley, who did not explain his reasoning.

“The disposition of this case will be determined by me after consideration of the record,” he added.

An attorney working for Hughes declined to comment on the decision and referred questions to a public-relations professional.

The spokesperson said in a statement that the administrative law judge had considered the evidence and correctly decided not to suspend or revoke Hughes’ license.

“We are disappointed that the commissioner rejected the Judge’s determination, but we look forward to continuing our efforts to resolve this matter fairly with the Department of Real Estate,” the statement said.

Hughes, the co-founder of the Hughes Marino real estate services firm who presented himself for years as an unpaid city volunteer, pleaded guilty to a single misdemeanor conflict-of-interest violation last March.

Without appearing in court, Hughes received a $400 fine and one year of summary probation.

He also had to return $9.4 million he collected in fees related to the 101 Ash St. lease and a similar deal for a nearby high-rise the city acquired with his help in 2016.

The plea bargain closed a long-running criminal investigation into how the city managed to lease the former Sempra Energy headquarters for $128 million over 20 years, even though the 19-story high-rise was riddled with asbestos and most of its infrastructure needed repairs or replacing.

Hughes said he informed six different San Diego officials, including then-Mayor Kevin Faulconer, that he intended to seek compensation for his work on the two leases. He also cited a letter he sent to then-real estate director Cybele Thompson in 2014, which she accepted and signed.

Faulconer, who left the Mayor’s Office in 2020 and is now running for a seat on the San Diego County Board of Supervisors, testified in a deposition that he did not remember Hughes telling him that.

No one else was criminally charged by District Attorney Summer Stephan.

On the day Hughes pleaded guilty, Stephan said the city’s decision to settle its civil lawsuits and buy out the leases for an additional $132 million complicated her investigation.

Hughes became the subject of a state Department of Real Estate civil complaint after his criminal plea in San Diego Superior Court.

Regulators have a range of options for what action they can take, from issuing a rebuke or fine to taking away his broker’s license. The Department of Real Estate lawyer who filed the complaint said Hughes should lose his license for violating the city’s trust.

Hughes testified publicly about the case for the first time at an August administrative hearing.

Administrative Law Judge Mary Agnes Matyszewski presided over that proceeding but did not issue her proposed decision until last month. It was released publicly this week, after McCauley rejected her recommendation.

Matyszewski found that Hughes should receive a public reproval — or censure — and pay $6,296 to cover the state’s investigation and enforcement costs.

She then reduced the fine to $4,000, finding among other things that Hughes had had a “good faith belief” that he had done nothing wrong with his work on the two leases that netted him millions of dollars.

“Mr. Hughes demonstrated appropriate remorse and rehabilitation and has enjoyed an otherwise lengthy, successful and discipline-free career,” Matyszewski wrote. “On this record, a public reproval is sufficient discipline to adequately protect the public.”

The 41-page proposed order notes that no one refuted Hughes’ claim that he told six city officials he intended to be paid for his work on the 101 Ash St. and Civic Center Plaza leases. It also noted how the resulting civil and criminal investigations had apparently affected the broker.

“While testifying, Mr. Hughes became extremely emotional, choking up several times,” the order states. “He explained how this entire process has been very hard on his whole family.”

In explaining her decision, Matyszewski also singled out what she called Hughes’ view that he was unfairly targeted.

“Mr. Hughes felt that he got bullied by the civil case and when he did not capitulate they ‘brought in a bigger hammer’ and filed criminal charges,” the judge wrote. “The entire thing was ‘a racket’ and he was ‘scapegoated.’”

That was not how criminal prosecutors and investigators at the District Attorney’s Office saw things.

According to motions filed by prosecutors in 2022, Hughes entered into a secret agreement with San Diego builder Cisterra Development to entice city officials to sign lease-to-own deals for the 101 Ash St. and Civic Center Plaza properties at inflated prices.

“Hughes and Cisterra representatives deliberately and methodically constructed a plan to hide from the city the fact that Hughes would be paid $9.4 million from excess loan proceeds made to Cistera in the two real estate transactions,” a July 2022 filing by the district attorney states.

“This significantly increased the cost of the transactions for the city, which they would never have agreed to if they had been fully apprised of the truth,” it added.

Cisterra officials denied any wrongdoing and stood by the deal their firm negotiated for both of the two office towers.

Despite what were then an open criminal investigation and active civil lawsuits filed by the City Attorney’s Office and a taxpayer plaintiff, Mayor Todd Gloria recommended in 2022 that the city buy out the disputed leases for a combined $132 million.

Gloria said the arrangement — which paid Cisterra the full value of both leases and indemnified the company from all future legal exposure — was the best path forward.

City Council members approved the plan on a 6-3 vote against the legal advice of City Attorney Mara Elliott.

“This settlement was the product of 18 months of mediation that enables us to fully exit an unfortunate business deal and gives us the certainty we need to plan the future of our downtown civic core,” the mayor said at the time.

The city subsequently withdrew its civil claims related to the disputed leases.

San Diego Superior Court Judge Joel Wohlfeil summarily dismissed claims filed in the taxpayer case weeks ahead of a scheduled hearing. He previously had ruled that the case had a “reasonable probability” of winning at trial.

The dismissal by Wohlfeil is being appealed, according to attorney Michael Aguirre, a former San Diego city attorney.

The Civic Center Plaza continues to house more than 1,000 city employees. But more than seven years after the city agreed to lease the Ash Street building, it remains vacant and unsafe to occupy.

Gloria’s plan to offer the property to developers for a wholesale remake of the downtown core has yet to generate any formal bids, although some discussions have been held.

Experts estimated that it would take more than $115 million to renovate the Ash Street building, and up to $28 million to demolish.

If razed, the resulting dirt lot at 101 Ash St. would be worth between $36 million and $42 million, a city consultant said.

The total cost of the Ash Street purchase is difficult to quantify because the city has financed most of the acquisition.

But adding up the payments made to date, ongoing maintenance costs and the overall cost of the 30-year bonds, the city has invested at least $270 million in the building.

San Diego financier Douglas Manchester paid $20 million for a 49 percent stake in the building in 2015.

In his letter to Hughes this week, the Department of Real Estate commissioner urged Hughes to accept a settlement to resolve the civil complaint seeking revocation of his license, although no specific terms were offered.

It was not immediately clear Friday when McCauley might reach a decision.