The former highest-ranking City of San Diego staffer has come forward as the whistleblower who first exposed over $15 million in profits hidden within the controversial 101 Ash building lease deal.

Kris Michell, who served as the City’s Chief Operating Officer from February 2018 to October 2020, has confirmed that she provided documents and information to a local attorney and to an NBC reporter during her tenure as the City's top staffer in hopes of exposing the truth behind what has now become one of San Diego’s worst political scandals.

Michell had previously served as Chief of Staff to Mayors Susan Golding and Jerry Sanders.

“I’m a whistleblower,” Michell told La Prensa San Diego in an exclusive interview this week.

Michell, a long-time City Hall insider, first admitted last week in a legal deposition that she had met with attorney Cory Briggs and later with NBC 7/39 reporter Dorian Hargrove to pass on City documents and information that first exposed that the building deal was corrupt from its inception.

The City acquired the building at 101 Ash Street through a 20-year lease-to-own agreement in late 2016 and took possession of the 19-story tower in 2017. The City later invested more than $35 million in tenant improvements before evacuating the building in January 2020 when loose asbestos material was found in work areas.

The building has remained vacant and is now the subject of numerous lawsuits filed by the City, its financiers, workers exposed to asbestos, and even a former City Attorney who argues the entire deal is unconstitutional.

Michell says that she first began to question the 2016 deal months into her tenure as the City’s top administrator which began in mid-February 2018. Michell was tasked with contracting for and managing the renovation work needed before the City could occupy the 19-story office tower.

When renovation costs exceeded the $35 million allocated by the City, Michell says she began to investigate how the building could require so much in improvements when it was billed as a “Class-A” building when the City acquired it.

Although no one in the Mayor’s office would explain the financials of the deal struck more than a year before she rejoined the City, Michell ended up calculating that the lease generated about $15 million in excess profits for the landlord, Cisterra Development.

The lease calls for the City to pay nearly $545,000 per month for 20 years, totaling more than $128 million, but the publicly stated sales price from the previous owners was $72.5 million, plus $5 million in prepaid tenant improvements.

According to Michell, when she alerted Faulconer’s Chief of Staff, Aimee Faucett, to the suspicious profits, Michell was told to “stop digging.”

Faucett had replaced Faulconer’s first Chief of Staff, Stephen Puetz, in mid-2017. Puetz had helped orchestrate the 101 Ash deal in 2016, and a nearly identical lease two years earlier with Cisterra for the Civic Center Plaza building within the City Hall complex.

Michell expressed to La Prensa San Diego this week that she “lost confidence” in City leadership after she discovered the $15 million in undisclosed profits were hidden from the public through the complex lease deal that included punitive financial terms that guaranteed profits for the financiers at the expense of the public.

Cisterra had refused to disclose its profits or expenditures when asked repeatedly by City officials.

La Prensa San Diego first reported in September 2020 that two sources claimed that Jason Hughes, the City’s pro bono real estate advisor, had received a backend payment from Cisterra on the 101 deal. Neither Hughes nor principals from Cisterra would confirm or deny the purported payment.

Michell testified under oath last week in a deposition that Cisterra principal Jason Wood twice denied that they had paid Hughes, and that Hughes did not clarify to her that he had been paid when she mentioned his “volunteer” work during a lunch meeting before his payments were disclosed.

At the time, Michell was unaware Hughes had been paid, but she had begun to suspect that some of the excess profits has been distributed by Cisterra.

It wasn’t until June 2021 that Hughes admitted that he had received over $9.44 million in profit sharing fees from Cisterra; over $5 million on the CCP lease and over $4.4 million on the 101 Ash deal, but he argues that he "disclosed" his intent to be paid in a 2014 letter to the City's then-Director of Real Estate Assets, Cybele Thompson. That letter stated that he would seek “to be paid customary compensation from any other parties in the transaction”, but he did not later disclose his signed profit-sharing agreement with Cisterra.

After Hughes' disclosure in June 2021, Elliott filed a lawsuit to invalidate the two leases due to Hughes' conflict of interest in benefiting from the leases he helped negotiate. California state laws, known as Government Code Section 1090, prohibit self-dealing in public agency contracts. A conviction of a criminal 1090 charge could be a felony.

In April 2022, Cisterra principal Jason Wood admitted during sworn testimony in a deposition that his company had agreed to a profit split with Hughes. The profits were divided as 45% to Hughes, 45% to Cisterra CEO Steven Black, and 10% to Wood.

Cisterra later disclosed a January 2015 agreement between it and Hughes which outlined the 45/45/10 profit split, but the agreement only included the Civic Center Plaza building deal. To date, no similar agreement has been disclosed that included a profit split on the 101 Ash lease deal.

A WHISTLEBLOWER IS BORN

Just days after the building was evacuated, Michell spoke before the City Council at its January 28, 2020, meeting and said the City would be hiring consultants to conduct a “forensic analysis” of the building deal to understand "who knew what and when.”

“We are in the process of hiring a forensic consultant on an emergency basis and as a top priority to perform a forensic analysis of what went wrong on this project. Simply, who knew what and when, and who has the obligation to assist us in solving this problem,” Michell told the Council.

Michell now says that she fully intended to hire consultants but that Elliott stepped in and claimed that only she as City Attorney could hire or manage outside lawyers. Elliott then assigned the work to the Hugo Parker law firm that had already been retained to represent the City in asbestos exposure cases, as well as the law firm of Burke, Williams & Sorensen.

“[Elliott] said that only she could manage the law firms,” Michell said. “No one wanted to fight her on it,” she added.

Six months later, Mayor Faulconer’s office released a report from the Parker law firm as an “independent review” of the controversial purchase of the 101 Ash building.

At the time, Faulconer claimed that he was releasing the report as a change from the City’s past “culture” of “sweeping problems under the rug.”

“I called for this independent review because City Hall has a very long and troubled history with managing its property and sweeping problems under the rug, and I didn’t want that culture to persist,” Faulconer said in his comments. “This report could have been put on a shelf or delayed so other people would have to deal with it, but it is my responsibility to share information with the public and propose corrective actions that get to the root of the problem.”

City Attorney Elliott then briefed the City Council in a closed session meeting where she detailed the findings of the lawyers, but clarified that certain damaging information would not be disclosed in public. Michell attended that meeting.

Michell now confirms that two reports were prepared; a complete one for the City Council, and a whitewashed version that Faulconer released to the public. The full version included two additional pages of observations and conclusions that showed City officials and staff failed to conduct proper due diligence on the building, relied primarily on representations made by the sellers and landlord, and executed a lease that was more expensive than having purchased the building directly.

The following week, Michell presented the whitewashed Hugo Parker law firm report at the City Council’s August 6, 2020 meeting where she called it “an unvarnished accounting” of the building project.

“This project has been fraught with challenges over the past four years, and given the taxpayer dollars involvement [sic], the public expects and deserves an unvarnished accounting of how we got here,” Michell said during the meeting. “Mayor Faulconer called for an independent review of the Ash Street project to determine what happened and this January you authorized Hugo Parker and other firms to investigate any and all aspects of the project for a full public accounting,” Michell said at the time.

Elliott sat behind Michell during the presentation and did not offer any clarifications or additional details. Elliott did not address the Council during the meeting.

“One thing is clear; when bringing any matter of business to you for your consideration, it is our responsibility to make sure you have all the information,” Michell declared. “And I don’t mean all the information that we think you should have, I mean all the information, period. Clearly that did not happen when this transaction was presented to you,” Michell added without clarifying that the report had been watered down for the public meeting.

Michell now admits that she knew the report was not completely transparent, but that she was told what to say by Faulconer’s office and the City Attorney’s office.

“That’s when I knew I was done,” Michell told La Prensa San Diego this week.

Michell says that it was during that period when she first reached out to attorney Cory Briggs for “advice” on how to handle the situation. She had known Briggs for years and knew that he had represented whistleblowers and fought against wasteful government spending.

“Yes, I considered him my attorney,” Michell said of Briggs, and that she wanted him to get the information out to expose the truth. Michell confirmed that she gave Briggs a physical copy of a legal memo prepared by Burke Williams, but that she did not give him any electronic versions of any files.

The Burke memo found fault with the process used to acquire the building, including that the City relied exclusively on information about the condition of the building provided by the sellers and the landlord company without conducting any of its own condition assessment reports or inspections, which was especially risky to the City because the lease accepted the building “AS-IS” and released the sellers and landlord from any liability for defects of the building.

Michell eventually knew that Briggs had provided the information to Hargrove and she then began to speak to the reporter directly. Michell exchanged text messages and numerous phone calls with Hargrove before meeting with him in person.

“I wanted the public to know the truth and I saw that the City Attorney [Mara Elliott] and the Mayor [Kevin Faulconer] were blocking the truth from the public,” Michell told La Prensa San Diego.

During a legal deposition held last week, Michell admitted for the first time that she had met with Hargrove to review a version of confidential legal memo he had used in a news article that revealed a footnote known as Footnote 15.

After NBC 7/39 published a Hargrove story on September 3, 2020, detailing the findings of the Burke memo, both Elliott and then-mayoral candidate Todd Gloria called the footnote’s authenticity into question, but never challenged the premise of the 26-page memo that called into question why the City used a more expensive lease than purchasing the building directly.

Hargrove maintained that he had received the Burke memo from a source and then used a high-level City official to verify its authenticity, but that the second source later retracted the confirmation. Hargrove never disclosed his sources.

It is now confirmed that Michell was Hargrove’s unnamed high-level source.

Michell admitted in her deposition that she did not read the footnotes in various versions of the Burke memo she had seen, and that she could not confirm whether the copy she gave Briggs contained that footnote.

“I gave him a version of that. I didn't read all the footnotes,” Michell said during her deposition last week.

Michell now admits that she met with Hargrove after the Footnote 15 controversy erupted and allowed him to take pictures of the pages of the version of the Burke memo she had, but that she did not leave the copy with him. That version did not contain Footnote 15.

On Monday, Hargrove’s two attorneys, Lawrence Shea and Marlea Dell’Anno, held an online press meeting with four reporters to discuss the details of the interactions between Michell and Hargrove.

Shea and Dell’Anno confirmed that the pictures taken of the Burke memo Michell had were reviewed by two document examiners who determined that the technical details matched the version Hargrove had, except for the missing footnote. The examiners believed that it was highly unlikely or nearly impossible for someone to alter the memo without having had the original digital files to work from.

Under pressure from Elliott and Gloria, NBC 7/39 later retracted the part of Hargrove’s story that mentioned Footnote 15. Hargrove and his producer, Tom Jones, were both suspended then restricted from covering City Hall issues.

During the past two years, Hargrove maintained the confidentiality of his sources, and refused to detail how he came into possession of the internal City documents.

It wasn’t until after Michell admitted in her deposition that she was the source for Briggs and Hargrove that details of their interactions were revealed.

Michell, now retired, says she is relieved to finally speak publicly about what she saw in hopes that the public will be able to learn more about the flawed real estate deal and how the City got into the costly mess that could cost taxpayers nearly $200 million.

“I’m still that Catholic girl that wants to do the right thing,” she told La Prensa San Diego.  “I never thought I would be in this position but I knew I had to speak up,” she added.

Hargrove recently left his position at NBC 7/39 and began working as a producer for CBS 8 in San Diego. Jones moved to work with NBC in Chicago.

Last month, Hargrove filed a lawsuit against NBC and two supervisors claiming employment discrimination, hostile work environment, and failure to prevent discrimination and harassment. Dell’Anno is representing Hargrove in that case.

DOUBLING DOWN ON A BAD BET

Mayor Todd Gloria, who was on the City Council when both the CCP and 101 Ash leases were approved, is now pushing for a legal settlement with Cisterra and its financiers.

The proposed settlement would have the City pay off over $135 million in debt on the two buildings, indemnify Cisterra and its financiers from all other claims, and leave the City on the hook for all improvements needed to make the building usable again.

Although costs estimates for the repairs could exceed $110 million, Gloria admitted at a recent press conference that he does not know exactly what the building will require until after the City acquires it in the settlement.

Sources within the City confirmed to La Prensa San Diego that no recent due diligence has been performed on the building to provide a more accurate estimate of needed repairs. Anyone entering the building is currently required to wear complete protective gear due to the exposed asbestos.

An appraisal released by the Mayor’s office last week proposes two alternative uses for the 101 Ash building: renovating it into usable office space, and tearing down the building for its empty land value.

The valuation for a renovation predicted a final building value of between (-$33,240,000) and (-$22,640,000) after an estimated $108 million in repairs, even before factoring in the $86 million debt cost in the settlement agreement.

The appraisal for the vacant property estimated the final value at between $4,080,000 $10,080,000 before subtracting the $86 million debt payment in the settlement.

Gloria maintains that a settlement ends several of the pending lawsuits and allows the City to determine the future use of the building, but Elliott has expressed her advice to the Council to reject the proposed settlement.

The legal settlement now pits the Mayor and Council members against the elected City Attorney who is empowered by the City Charter as the chief legal advisor to the City.

Sources have suggested that Gloria has negotiated an undisclosed deal to transfer the toxic building to SANDAG or the State of California as part of proposed developments that could include a new City Hall complex, but no such deal has been made public.

The City Council is scheduled to consider the proposed settlement at its July 26th meeting at 2pm. The settlement had on its June 27th meeting agenda, but the item was abruptly withdrawn as that meeting began.

Castañares is the Publisher and Editor-at-Large of La Prensa San Diego. He is the 2021 winner of the prestigious Ruben Salazar National Award for Excellence in Print Journalism presented by the California Chicano News Media Association, and a recent 1st Place Award winner in Politics/Government from the Society of Professional Journalists' San Diego Pro Chapter . He can be reached directly at art@laprensasd.com.