By Arturo Castañares
Editor-at-Large

Although a downtown high-rise building purchased by the City in 2016 as a new space for over 1,000 staffers was closed down last year over asbestos exposure, a greater threat to people in the building could have been uncontrollable fires.

A lawsuit filed this week by a senior City staff engineer claims he warned his superiors about non-functioning heating, air conditioning, and fire systems in the 101 Ash Street building beginning in late 2018, more than a year before the City began moving up to 1,100 staffers into the building in January 2020, but his warnings and those of several outside vendors were ignored by City departments, putting staff and the public at risk.

Marlon Perez was an engineer on the 101 Ash Street project soon after the City entered into a 20-year lease-to-own deal in January 2017. The following year, Perez, who holds a Master’s Degree in Civil Engineering from San Diego State University, was promoted to Project Manager overseeing the building improvements being made before staff could move in, but he was removed in late 2019 after repeatedly clashing with his superiors who ignored warnings about the condition of the building.

In January 2020, the City moved nearly 1,100 staffers into the 19-story building, but within three weeks, the San Diego County Air Pollution Control District (APCD) forced the closure of the building as a “Public Nuisance” after repeated violations of dangerous levels of asbestos exposure. The building has been vacant since then, and now the City, its landlord, and financiers are embroiled in multiple lawsuits over the financial terms of the deal and who will ultimately pay for repairs.

But the exposure to asbestos, as dangerous as it can be to occupants of the building, now seems like a less immediate threat than the lack of life safety systems that would not have functioned in the case of a fire, putting all of the occupants at risk of smoke inhalation and possibly being trapped in a burning building.

Ironically, the threat of exposure to asbestos, a now-recognized carcinogenic historically used to as a fire retardant, may have saved over a thousand staffers from uncontrollable fires in the building.

 

CONDITION OF THE BUILDING

The City purchased the 101 Ash Street building in late 2016 through a 20-year, lease-to-own agreement with Cisterra Development, a local company that builds and owns several buildings, including the new Sempra Energy headquarters building near Petco Park. Sempra, and its subsidiary San Diego Gas & Electric, had occupied the 101 Ash building for over 45 years before moving to the new Cisterra-owned building in 2014.

101 Ash St. had been owned by Sandy Shapery for more than 20 years before he began negotiating to sell the building to the City in 2014. Shapery is best known for having developed the unique 16-sided green-topped Emerald Shapery towers building on Broadway that dominates San Diego’s skyline.

Talks broke down in 2015 when Shapery was asking $100 million for the building. The following year, Shapery sold a 49% share in the building to local hotel developer “Papa” Doug Manchester for $20 million (imputing a value of just over $40 million), and just a few days later, then-Mayor Kevin Faulconer and senior staffers toured the building. A deal suddenly seemed more likely.

By mid-2016, Cisterra entered the picture and agreed to purchase the building from Shapery and Manchester for a reported $72.1 million under a letter of intent with the City where it would either buy or lease the building from Cisterra.

Several senior City staffers say Faulconer directed them to negotiate a long-term lease with Cisterra instead of buying the building itself so the City would not pay the sellers directly, limiting the political exposure of seeming to pay tens of millions of dollars directly to Manchester, one of the Mayor’s biggest campaign donors.

During the negotiations, City staff and Cisterra, along with Shapery, represented that the building was Class A space, meaning the highest level of commercial offices on the market. Sharpey himself later wrote a piece published in the San Diego Union-Tribune saying the building was “well maintained throughout my ownership” and he quoted a “lender’s independent property conditions assessment prepared just two years before the city’s acquisition in 2014 gave the building the highest possible grades in all 21 categories, and stated it appeared to have been well maintained.”

Cisterra hired AEC Consultants to conduct a property assessment of the building, but the report itself says it is “based on a Site visit, in which AEC performed a visual, non-intrusive and nondestructive evaluation of various external and internal building components” and that “is not a building code, safety, regulatory or environmental compliance inspection.”

During City Council meetings, then-Councilman Todd Gloria spoke positively of the building, twice saying that “for those of us that have been in it, it’s extremely well maintained” before concluding by making the motion to approve the deal.

“I see this as win all the way around…it’s a better business arrangement for the taxpayers…it’s something I want to be a part of today so I’m happy to make that motion,” Gloria said during the City Council meeting where the deal was unanimously approved.

One of the biggest supporters of the building deal was the Municipal Employees Association, the union representing over 4,000 employees. Its General Manager, Michael Zucchet, spoke in favor of the deal at the City Council meeting, saying “we’re fully supportive of this we appreciate very much your efforts” in expressing his union’s support for the deal.

In its rush to approve the deal, the City seems to have relied on representations from Cisterra and the sellers, but missed obvious warning signs as to the true condition of the building.

In 2014, a consultant for Sempra testified before the California Public Utilities Commission, the government agency that regulates utility companies and must approve expenditures they make and can include in customer energy rate charges. In his sworn testimony, James Seifert estimated that the building would need $3 million in repairs over the following 10 years, in addition to up to $25 million to mitigate asbestos, and up to $15 million in repairs if a moderate earthquake occured. The testimony is easily found on the Internet.

“The functional obsolescence of the headquarters building, originally built in 1966, generated additional concerns, including remaining asbestos abatement,” Seifert said before the PUC. Sempra then decided to vacate the building.

During presentations before the City Council in 2016, City staff represented that the building would only need “a $10,000 power wash” before staff could move in. The lease included nearly all of the building’s office furniture, making it move-in ready. The staff argued the deal would save the City up to $44 million over the term of the lease when compared to continuing to rent similar office space in downtown. The City Council voted unanimously to approve the deal.

City Attorney Mara Elliott approved the lease agreement that included onerous language on its first page, listed in all capital letters, saying the City would take the building “AS-IS” and that “LANDLORD SHALL HAVE NO RESPONSIBILITY OR LIABILITY” for repairs of any known or unknown defects with the building. Real estate experts argue that the language is unusual in a tenant lease, and that the language gave the landlord, Cisterra, total immunity from repair costs.

TENANT IMPROVEMENTS BEGIN, REVEAL PROBLEMS

Soon after entering the lease, the City began making plans for tenant improvements to increase the capacity from 800 to up to 1,100 workers in order to reduce rented office spaces in other buildings and meet costs savings estimates used to justify the building lease.

By early 2018, the City’s Public Works Department was moving forward with an estimated $30 million in tenant improvements. Perez became the Project Manager in October 2018, leading staff and outside consultants who were brought in to deal with the antiquated electrical, air conditioning, heating, and fire systems.

In November 2018, a heating, ventilation, and air conditioning (HVAC) company hired on the project raised issues with the life safety systems being non-functional. Life safety systems can include fire suppression, alarms, control systems, exits, ventilation, and other components that work together to suppress or control fires in large buildings.

Perez documented the issues in his Progress Meeting minutes to notify his supervisors and superiors. Perez says the City staff did not agree to fix the failing systems.

In March 2019, another outside consulting company, AirMetrx, became concerned with the condition of the life safety systems and the City’s reluctance to address them. AirMetrx commissioned and paid for an independent report on the building automation systems (BAS) to document the true condition of the various systems within the building.

That report, conducted by Plexus Technologies, examined the building and concluded that “Most of the hardware was installed over 25 years ago and has exceeded its life expectancy“, and that “after a thorough inspection and review of each floor we found the overall condition of the system to be in extremely poor condition.”

The report detailed that the building originally relied primarily on the heat from light fixture bulbs to provide radiant heating for the office spaces, but as fixtures were upgraded to more modern light bulbs, the building then used hundreds of fan coil units to provide heat.  The report found that “Many of the temperature and duct static pressure transducers have been removed, relocated or are damaged beyond repair,” rendering the heating system useless.

“If there had been a fire, there was no way to isolate it. We went to the City and told them that the fire system was no longer functioning the way that it was designed,” Scott Lee, owner of Air Metrx said.

Over the next few months, other companies dealt with asbestos exposure as construction work disturbed outdated encapsulation methods and released carcinogenic material into work spaces. Floor by floor testing was sometimes stopped because air filters would get clogged with debris and disrupt testing results. Floors that failed air quality tests or where tests could not be completed were closed down. Eventually, several floors were closed to construction workers for fear of asbestos contamination.

Perez claims that City department leaders replaced outside experts with internal staffers that conducted their own air quality tests. When filters became clogged during testing, Perez says City staffers concluded that did not constitute a failed test, so those floor were reopened to construction.

In August 2019, someone made an anonymous complaint to the County Air Pollution Control District (APCD) that workers were being exposed to asbestos during construction on the building. After conducting its own tests, the APCD closed the building down for three weeks to force abatement of the asbestos exposure. Work soon continued on the building.

“Specifically, visible emissions were found on various floors inside the building that were exposed to the outside air,” the APCD report stated.

The next month, another consulting firm, Harris & Associates, convened a meeting of leading City staff working on the building. Eric Jackson from Harris & Associates explained to City staff that the building’s life safety systems were not functional and that it would be “unlawful” and “dangerous” to occupy the building without replacing the outdated and non-functioning equipment. Jackson then took the senior staffers for a tour of the building to point out equipment that was not working.

During the last two months of 2019, Jackson & Blanc, a 90 year-old San Diego HVAC contractor, directed two of its technicians to physically bolt open hundreds of air system dampers, vent doors that are supposed to open and close as needed to maintain heating and air levels. Dampers were locked 80% open to distribute whatever little heat existed in the building. Dampers are also supposed to close in areas where fires start in order to cut off air feeding the fire, and to remain open in other areas to provide air to occupants as they escape the fire, but the building automation system and the motors that controlled the dampers were not functional.

With the dampers permanently open, a fire in any location of the building would continue to pull in fresh air to feed itself, and smoke from the fire would flow throughout the entire building, likely immobilizing occupants from smoke inhalation even before a fire reached them. According to a retired San Diego City fire marshall, dampers are never supposed to be locked open in a functional life safety system.

Despite multiple warnings and clear signs of life safety system failures, the City continued moving forward with tenant improvements in a rush to begin moving workers into the building.

In November 2019, as the building was being readied for staff to move in, Luis Guerrero, a Senior Engineer with CBRE, the management company hired to oversee the building, warned his company of imminent asbestos exposure to 100 janitors the company hired to clean the building. Guerrero had been the person who tipped off the APCD months earlier. When the City learned that Guerrero had reported his concerns about asbestos exposure, his work at the building was terminated.

 

STAFF MOVE IN UNAWARE OF DANGERS

The City began moving staffers into the building in late December 2019 and by January 2020, over 1,100 employee were operating from the building. According to City staff, including then-Deputy Chief Operating Officer Johnnie Perkins, fire system inspections were completed and the system passed. Perkins also dismissed concerns over asbestos.

“The city’s first priority is safety — first, second and always,” Perkins told NBC 7 in early January 2020 as staff were moved in.  “We moved our staff in because visible debris on the ground in and of itself is not hazardous.” Perkins had supervised the building project.

City engineers claim the building would not pass final fire inspections in December 2019 just before employees began to move in.

But on January 14, 2020, APCD inspectors reviewed the building and issued another violation letter after asbestos was found in a conference room and in a mechanism shaft.

Three days later, then-Chief Operating Officer Kris Michel issued a memo announcing that “City leadership has decided to temporarily relocate employees from the building in an abundance of caution.” Staff have not returned to the building ever since.

Staff were never informed that life safety systems were judged by several consultants to be outdated, non-functional, or purposely deactivated. Although the concerns over asbestos were publicly discussed, City leaders never warned its employees that the high-rise building could become a firing tower.

La Prensa San Diego reached out for comment to Michael Zucchet, of the San Diego Municipal Employee Association (MEA). Zucchet did not respond to questions asking if he was aware the building life safety systems were reportedly not functional when staff moved into the building or to comment on news that the employees were moved into an unsafe building.  Zucchet did not respond to the email to him or to a message left with MEA staff.

 

EMPTY BUILDING STILL FIRE HAZARD, NOW A LEGAL BURDEN

The building has how been vacant for over one year, and the property management contract with CBRE has been terminated by the City Council. In September 2020, Council Members debated keeping the contract for the vacant building, but voted 6 to 3 to cancel the $331,000 annual contract although the lease requires the City to maintain property management services.

Last year, after a lawsuit was filed in August 2020 to force the City to stop making the $545,000 monthly lease payment on the empty building, then-Mayor Kevin Faulconer stopped making the payment to the financiers. The City has not made payments since September.

The City has sued to force the financiers to forgive lease payments during the time the City has been unable to use the building, but now the financiers have sued the City to force reinstatement of the payments, claiming any damage to the building was caused by the City’s “unapproved” tenant improvements.

Another lawsuit now seeks to invalidate the entire lease agreement, claiming it violates the state constitution because the City cannot spend taxpayer money without receiving a benefit or use for the funds.

Perez’s lawsuit claims he was retaliated against because of his continued warnings about the condition of the building, resulting in his losing a promotion, and for being exposed to hazardous working conditions.

Guerrero has also filed a lawsuit claiming retaliation for being a whistleblower, for exposure to hazardous working conditions, and for interfering with his employment.

And several other lawsuits have been filed by employees and contractors over the exposure to asbestos during their work in the building.

It remains unclear what the City will do with the building, either investing the estimated $110 million to replace the mechanical systems, or work out a financial solution that allows the City to exit the deal.

For now, lawsuits will tie up the building for the foreseeable future, and employees will not be using the space once championed as a great deal for taxpayers and City workers.

Correction: an earlier version of the story included a claim that San Diego Fire Department staff did not move into the building in January 2020. City staff clarified that SDFD personal did work from the building before the evacuation in late January 2020.