This Conflicted Commercial Broker Cost San Diego $200 Million

As True Tenant Reps?, it is our fiduciary duty to work for the best interests for the commercial tenant. Part of this responsibility involves bringing awareness to the fact that?conflicted brokers can’t guarantee the best deal because they work for firms that work overwhelmingly with landlords.

Tenants usually get the?*ahem*,?worse, end of the stick in this scenario as they lose out on seeing the best properties, terms, and prices for their CRE portfolio.

But what happens when the tenant is a government body and hundreds of millions of taxpayer dollars are at stake??Some swift legal action that represents a firm precedent against the ethics of conflicted brokers.

It’s also one of many cases brought against the practice of dual agencies in recent years that may represent a shift going forward as tenants analyze the cost of working with represents who don’t truly have their best interest. Read on to learn more.?

San Diego's Conflicted CRE Broker?

Jason Hughes, founder of well-known San Diego brokerage firm Hughes and Marino,?pleaded guilty to a conflict-of-interest charge after accepting $9.4 million from the seller of two downtown buildings while advising the city on the purchase of those properties.

Hughes began his relationship with the city in 2013 under then-mayor, Bob Filner. He was designated as a special unpaid real estate adviser to the city of San Diego and worked closely with the Filner’s office. Hughes, utilized his role as a volunteer advisor to represent the city in the purchase of a 53-year-old tower at 101 Ash St. in a 2016, $128 million lease-to-own deal.

Here’s where things get, conflicted,?to say the least.

In 2014, Hughes also started?“working closely”?with major landlord, Cisterra.

“The discovery portion of that proceeding uncovered documents revealing the private agreement Hughes signed with Cisterra principal Stephen Black in 2014 calling for a?55-45 percent split of any profits from any future real estate deals."

-San Diego Tribune

Hughes used his platform as a tenant advisor?to the city to privately drive deals to Cisterra to their mutual benefit. Cut and dry conflict of interest.

Now, most CRE conflicts of interest aren’t necessarily?this egregious.?Hughes’ position of power and simultaneous involvement with both parties represents not only questionable ethics in private business dealings, but among taxpayer dollars.?The city of San Diego essentially lost hundreds of millions of dollars while Hughes earned almost $10 million.

So, that’s how Hughes found himself on the end of criminal charges when most conflicted broker violations would be slapped with a fine,?if anything.

The "As-Is" Leases

Not only did Hughes possibly pass up properties better suited for the city’s interests by partnering with Cisterra, but he also ensured that the landlord would milk the deal for every last drop by?leading the city to assume the leases “as-is.” So there was no due diligence on behalf of the tenant or their representation.

Under the 2016,?$128M lease-to-own deal?negotiated by Hughes the city never conducted an assessment of the conditions of the properties.?Yikes! Wonder what could go wrong.

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