Quote:
Originally Posted by SDCAL
Once the Navy HQ is complete they will “perfect the ground lease”?
What does that mean? Is that a vague way of saying they will pursue financing after that? I don’t want to re-hash old arguments on this board but in my opinion Manchester seems shady about how they went about this whole thing. This is not how they sold the project timeline to the public up-front.
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Perfecting a lease means the lessee has fulfilled some requirement or condition, formally activating the lease. An simple example would be a clause stating that the lessee is required to pay a security deposit before taking possession of an apartment. But the requirements can be anything, like requiring a developer to obtain building permits for a subdivision before they can take possession of a particular plat.
From this and a few other articles it's now fairly clear what's going on. The Navy is requiring MPG to build the Navy office tower to completion, have the Navy accept the build as adequate, and allow the Navy to move in
before they give MPG control over the Navy's land (aka perfecting their ground lease). Because the Navy retains complete ownership of anything built upon the land until MPG's lease is perfected, MPG can't use any (future) buildings built upon it as collateral for a loan until the Navy office tower is finished. No bank is going to lend you money against something another party can take back whenever it pleases them.
Note that this doesn't mean MPG will have to go out and hunt down financing after they finish the Navy office. They could already have agreements with creditors in place (and claim to do). But the money doesn't transfer hands until MPG finishes the Navy office. This keeps all the risk on the developer, as the investors haven't handed over any of their cash yet, and in the event MPG can't finish the office tower the Navy can just re-lease out the land to whomever they like. The whole concept is extremely common in P3s, just a month ago I took the keys to a building after going through the exact same process.