Shadow of doubt

Analysts for the city of San Diego say building a new city hall will save the city money over staying put, but calculating financial projections 50 years into the future is a process so arcane that citizens practically need Isaac Newton to figure it all out. And if those projections don’t show the city saving money with a new city hall, the project won’t get crucial political support. As Mayor Jerry Sanders is fond of saying about this project, “It’s a business decision.”

In this case, the skeptic is tenant broker Irving Hughes. In May, the firm sent a letter to Sanders insisting that the city’s analyst, financial-services firm Jones Lang LaSalle, overestimated the future cost of continuing to lease the office space the city currently occupies. Irving Hughes argued that it, the more experienced San Diego firm, could get a much better deal. And lowering those costs would make it less cost effective to build anew. Irving Hughes continued to make this point in letters to City Council members.

But then, there are questions about the questions—or, rather, perhaps, the motives behind the questions.
Through much of the 1990s, Irving Hughes’ predecessor company, Donovan Irving, represented the city in locating office space for the city to lease. The firm found three buildings to house expanding city staff, and the city now occupies 500,000 square feet of leased space Downtown. But the tenant doesn’t typically pay tenant brokers; the landlords pay them in commission agreements.

CityBeat obtained contracts signed between Donovan Irving and the city’s three landlords through California Public Records Act requests. Each one contains similar language that Irving Hughes is to be paid a commission of either 3.5 percent or 1.5 percent if the city extended the lease or expanded its space in the building—and the city has extended or expanded its leases on several occasions. These contracts, which have been inherited by Irving Hughes, also say the broker could receive a commission if “any other collateral agreement” is reached between the tenant and the landlord.

This contract language led Jim Barwick, head of the city’s Real Estate Assets Department, to wonder whether Irving Hughes would get a payment if the city stays in its current office space, even if another firm negotiated the deal.

“Are they going to get paid if the city stays?” Barwick said to CityBeat. “Would they have some demand for a commission? That’s the ultimate question we’re trying to answer, and we still don’t know the answer.”

If Irving Hughes gets paid if the city stays in its current leases, which expire in 2014, then that casts shadows of suspicion over the firm’s critique of the Jones Lang LaSalle analysis. So, CityBeat asked Craig Irving, one of the principals at Irving Hughes, would they get paid?

“No,” Irving said. “We only get paid if we’re involved with the transaction, and we’re no longer the city’s tenant broker.”

In fact, he says his firm has never been paid any commissions from the agreements, with the exception of the original payment in 1991, and again when it renegotiated some of the leases as the city’s broker in 1997.

So, if the company derives no financial benefit, why is it inserting itself into the process?

“The Mayor’s office asked us to look at the numbers, so we did,” Irving said. “It’s my civic duty to voice my professional opinion.”

Rachel Laing, spokesperson for the mayor, said it went down differently. She said Irving expressed concerns to Kris Michell, Sanders’ chief of staff, who invited Irving Hughes in for a meeting, during which she offered them the backup data first used by Jones Lang LaSalle. In a later meeting, as CityBeat has previously reported, Irving and his partner, Jason Hughes, met with city staff and Centre City Development Corp. Chairman Fred Maas, and reiterated their critique of the lease rates. But the staffers in the meeting weren’t impressed.

“Unfortunately, Irving Hughes’ feedback was extremely vague,” Laing said in an e-mail. “They were willing to give their conclusions, but not to back them up in any way. They said that every single assumption made by JLL was completely wrong, but when asked, they refused to elaborate, provide alternative data or refute the JLL data in a point-by-point, fact-based manner that the mayor’s office could rely on.”

Now, Irving doesn’t want to talk to the Mayor’s office and doesn’t even want to appear before the City Council. Councilmember Donna Frye, as a member of the council’s Rules Committee, practically begged the company to send a representative to either of the two hearings the committee has held on the city hall issue. CCDC Vice President Jeff Graham e-mailed the firm an invitation, but Irving responded that he had “no intention of attending.”

The full council is tentatively scheduled in July to discuss whether to commence negotiations with the project’s developer, Gerding Edlen.

“We might go,” Irving said. “But I feel like I did what I was asked and it got spit back in my face. It doesn’t leave a good taste in my mouth. We’re extremely busy with our business, with paying customers. There’s only so much time I have in the day.”   

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