Asked for my money back in month 20. Learned what a repurchase program is.

Put $12k into a non-traded pooled real estate vehicle on a platform two and a half years ago. Set it and forgot it, exactly as intended, while I saved for a rental down payment. The plan was always to pull it out when I was ready to close on a house.

Month 20, I'm under contract, I need the cash for the down payment plus reserves. I go to redeem and read the actual terms for the first time since funding, which is the part I own.

Three things I had not internalized. Redemptions happen on a quarterly window, not on request, so my money was already 5 to 11 weeks away depending on when I asked. Shares held under five years take a haircut off the then-current net asset value on a sliding scale, and mine sat in the tier where I gave up a few percent. And the repurchase program is capped, something like a small percentage of outstanding shares per quarter, with the board able to reduce or suspend it entirely at their discretion.

My quarter wasn't oversubscribed, so I got out. Net of the early redemption haircut and a NAV that was flat to slightly down from where I bought, I took back about $11.4k on $12k after 20 months, plus roughly $700 of distributions along the way. So call it a wash with a lot of paperwork.

The outcome was survivable. What bothers me is that the outcome was decided by whether other holders happened to want out the same quarter, and I had no visibility into that at all. If the queue had been full I would have blown the closing date.

What I'd do differently: money with a date on it does not go into a vehicle whose exit is at someone else's discretion, no matter how liquid the marketing page makes the redemption program sound.

Answer

2dmitri_v6CapitalPRO6

Your read on the mechanism is right, and the document to look at next time is the offering circular or prospectus rather than the redemption FAQ. In these programs the pieces that decide your outcome are usually four separate provisions and they're rarely on the same page.

First, the cap. Typically stated as a percentage of aggregate NAV or outstanding shares per quarter or per year, and when requests exceed it the program prorates. Prorated means you get a slice and the rest goes back in line next quarter, so a 40 percent fill on a $12k request is a real possibility rather than a theoretical one.

Second, the discretion language. Most say the board or manager may modify, suspend, or terminate the program at any time without shareholder approval. That sentence is the whole risk. It exists because the alternative is selling buildings into a bad market to fund redemptions.

Third, the early repurchase deduction, which is what you hit. Sliding scale off NAV by holding period, and it's applied to the transaction price on the redemption date rather than what you paid.

Fourth, and this is the one people miss, the NAV determination itself. You're redeeming at a price the manager calculated using their own valuation policy, with a lag. Read how often they revalue and who does the appraisals.

Specific terms vary a lot between programs and they get amended, so confirm the current version in the filed document rather than a summary. For money attached to a closing date, none of these mechanisms are something you want between you and a wire.

4 replies

1chriswalton8CC1CPRO8

The part that gets people is that the redemption program is a feature the sponsor offers, not a right you bought. I had assumed the opposite for about a year while I was reading about this stuff. It reads as liquidity because there's a button, and then you find the sentence about the board's discretion and realize the button is a request form.

Did your platform publish how full the queue was in prior quarters? Some do in the annual filings and some just don't say.

2jordan_ellis2ActivePRO6

I had this exact plan mapped out, down payment savings parked in a pooled vehicle for the yield. Reading your month 20 changed my mind about it in one sitting. $700 of distributions is not worth a maybe on the closing date.

1Rena Expert

The structural point in warrant's answer is the one to hold onto: a share repurchase program in a non-traded vehicle is a discretionary liquidity facility, and the cap plus the suspension right mean the exit is conditional in ways a brokerage account isn't.

Two things worth adding to how you model this. The proration mechanism means your realized liquidity depends on other holders' behavior, and that behavior correlates with market stress. Redemption requests cluster when values fall or when investors need cash for other reasons, which is exactly when the manager least wants to sell assets to fund them. So the facility is most likely to be constrained in the quarter you most want it. Historical fill rates in prior periods tell you something about the program's design, and they are not a promise about the next quarter.

Second, the NAV you redeem at is a manager-determined figure produced under a stated valuation policy, usually with independent appraisals on a cycle and internal adjustments in between. Ask how frequently the underlying assets are appraised, who does it, and how long the lag is between the valuation date and the transaction price you receive. A quarterly NAV built on annual appraisals moves slower than the market, in both directions.

For capital with a known use date, the ordinary approach is to match the instrument's contractual liquidity to the date, rather than relying on a discretionary program. Anything in this category is a securities offering with its own governing documents, so read the current filed circular and get any question answered in writing by the sponsor before funding.