Negotiating well

Here’s one that local public-radio listeners know: “Irving Hughes, exclusively advocating the interests of corporate tenants and not representing landlords in the leasing of space. Irving Hughes negotiates lease expansion, renewals, relocations and building purchases. Online at Irving Hughes dot com. Irving Hughes: Life is a Lease—negotiate well.”

But when it comes to negotiating with clients, Mayor Jerry Sanders’ top aides, along with Centre City Development Corporation (CCDC) Chairman and CEO Fred Maas, learned at a December meeting just how Irving Hughes negotiates: with a heavy hand and implied threats.

CityBeat tried to contact both Craig Irving and Jason Hughes via e-mail and phone but only received a cell-phone number in an e-mail from Irving, who did not return calls.

Irving Hughes represents, by its own claim, more than half of Downtown’s tenants. For every lease they arrange, they make a commission, and for much of the last 15 years, they represented the city of San Diego, including negotiating the city’s leases at three office buildings near the current civic center complex. The city, with its 10,000 employees and its need to rent half a million square feet of office space, represents a lot of money for whoever represents it.

But Irving Hughes’ contract with the city will expire soon, so, last year, the city began the usual two-stage bidding process for competitive bids. But sources say Irving Hughes was so confident that they would win that the company blew off the application, submitting a brief document that barely sketched its capacities. Real Estate Assets Director Jim Barwick rejected it, and the firm was not allowed to proceed to the second phase. Furious, Irving and Hughes demanded that San Diego Chief Operating Officer Jay Goldstone review the process, which he did, finding that Barwick had acted correctly. The contract eventually went to the New York-based real-estate-services firm Studley Inc.

Meanwhile, CCDC had been continuing its hunt to find a developer to propose a new civic center complex. The winning bid (PDF), from Portland-based Gerding Edlen, would provide enough office space to house all of the city’s departments under one roof. If built, the complex could potentially remove the need for any leasing agent at all.

On Dec. 18, 2008, financial-services firm Jones Lang LaSalle (JLL) released the first of two reports (PDF) assessing the financial viability of building a new city hall. JLL found that the city would save hundreds of millions of dollars over the long term by building the project.

Prompted by the analysis, Irving and Hughes requested a meeting with the mayor’s staff and Maas. So, that week, Maas and Barwick, along with Julie Dubick, Sanders’ director of policy, and policy advisor Phil Rath, all met with Irving and Hughes in the Mayor’s office. Three sources who attended the meeting tell CityBeat that Irving and Hughes announced that Jones Lang LaSalle didn’t know anything about San Diego and that they’d gotten it all wrong. They said that thanks to proprietary data they had developed, they’d be able to get the city much lower lease rates. They demanded that CCDC hire Irving Hughes to do an additional analysis for the same amount they paid JLL—now known to be about $500,000. Maas declined.

The sources said Irving and Hughes were furious at Maas for his refusal. They began to say things that sources interpreted as threats to publicly undermine the civic center project. Maas remained firm.

In the intervening months, the possibility of a conflict of interest at JLL led to accounting firm Ernst & Young evaluating the first report and then another report (PDF) by Jones Lang LaSalle, released last month. But in that time, sources tell CityBeat they began to hear rumors that Irving and Hughes were going around town saying how dumb the mayor and Maas were in their handling of the project and that it was sure to fail.

Last week, Irving Hughes sent a letter (PDF) to Mayor Sanders insisting that Jones Lang LaSalle was biased in favor of the project and that they, Irving Hughes, could save the city 50 percent on current rents, thanks to their deep knowledge of the San Diego rental market. With that kind of savings, the city would be sure to save more money by not building the new city hall and preserving the status quo. Councilmember Carl DeMaio, an ardent opponent of building a new civic center, turned the Irving Hughes letter into a press release, encasing it in a letter of his own demanding that CCDC reconsider the assumptions in the Jones Lang LaSalle report.

“I’m not exactly sure what proprietary information they’re talking about,” Maas told CityBeat in response to the letter. “They represented CCDC when we made our move to 401 B St. When they negotiated our lease, we were never proposed a 50-percent reduction.”

On Tuesday, CCDC forwarded to the mayor and DeMaio a response letter from JLL (PDF). The letter amounted to a smackdown of Irving Hughes, saying the firm compared data with JLL’s first, now-obsolete report, that it misrepresented some information and got other things plain wrong.

The city hall project will be discussed by the CCDC board on Wednesday, May 20, and the board will decide whether or not to forward it on to the City Council.

Write to ericw@sdcitybeat.com and editor@sdcitybeat.com.