The 101 Ash Street morass

The city has stopped paying rent on 101 Ash St., but the asbestos-riddled building has sat empty for months, posing a new problem. Vacant buildings are at high risk of vandalism, fire and theft. And the city has dropped it from property management services.

It's time to renew the contract with CBRE, Inc. to manage 101 Ash St., 1200 Third Ave. (CCP) and 201 A St. (King Chavez School), but on Sept. 15 the city council made a change to the terms of the agreement, dropping Ash St. and raising questions about the city's liability in the event of a loss.

"We are still in possession of the building although not physically occupying it," said deputy chief operating officer Erik Caldwell. If a fire broke out or a pipe burst in the night, "we would still need to respond."

All of the buildings have lease-to-own agreements that require the city to hire a third-party property management company. The city chose CBRE, which had managed 1200 Third Ave. and 201 A St. for over 25 years when the lease began in 2015. Three years later, 101 Ash St was added.

If something happened to it while the property management agreement was in place, the liability would fall on CBRE, Caldwell said.

The company had threatened to drop services for all three buildings if Ash were removed, or the city didn't agree to "spread the cost" for managing just the two properties.

Council president pro-tem Barbara Bry, who made the motion to drop Ash - and the full cost of its management - called CBRE's response "blackmail."

Ash St.'s share of the contract was about $311,000, which Karen Johnson, asset manager for the city's real estate department, said would keep two building engineers on site, maintain the systems and provide 24/7 security.

"Even though Ash is vacant," Johnson said, it's important to maintain property management to protect it, "regardless of what we ultimately end up doing with that building."

Security is critical with an empty building, "particularly a large one in the middle of downtown, an easy target, she said. "The homeless population could easily get into it."

Sanna Singer, assistant city attorney, reminded the council of another risk in excluding it - a breach of the lease requirement for a third party property manager.

That, in turn, could affect insurance on the former Sempra Energy headquarters that now needs an estimated $115 million in repairs.

Claudia Castillo de Muro, the deputy director of risk management, said the property is covered by Prism, the joint powers authority that provides insurance for most of the city's portfolio.

In 2018 the property committee adopted a vacant building best practices policy to limit losses to empty buildings, which de Muro said are "uniquely susceptible to perils such as fire, vandalism, and theft."

The policy requires members to conduct periodic inspections, secure the perimeter, and address maintenance issues. "Failure to adhere to vacant building policy could jeopardize coverage," she said.

Councilmember Scott Sherman asked if city staff could take over any of the functions handled by CBRE.

Caldwell said they were trying to determine if the security company used by CBRE could be hired. But there's still the monitoring of the systems. "It would take several weeks at best for our existing city forces to learn those systems and be able to operate them."

In support of the motion, councilmember Ward noted that they had already breached the contract on the toxic building by refusing to pay rent to landlord Cisterra Development starting September 1, as decided by Mayor Kevin Faulconer.

Councilmember Vivian Moreno agreed, calling property management services in the situation "a frivolous waste of taxpayer dollars."

On Sept. 28, the council approved the amended contract for one year, with a reduced amount for managing the other two buildings not to exceed $539,000. Councilmembers Chris Cate, Jen Campbell and Scott Sherman were opposed.

"I have been worried since the last vote that perhaps the city's insurance coverage on 101 Ash would not be in place" without a third-party management company, Campbell said.

The building is insured and will continue to be insured, de Muro said. "The impact rests with the property being vacant."

If there's a loss, the joint powers authority can summon inspections and the property committee - which governs coverage - can decide to modify coverage.

"They could point out that the city is not in compliance with best practices, change valuation to actual cash value or flat out exclude coverage altogether."