Who decides when we sell? Operator discretion, a hard outside date, or a buy-sell

Hard dates are how good assets get sold badly. I hold land for a decade at a time and every forced sale I've watched happened because a document said year five and the market said no. If the asset is right, time is on your side, and a calendar overrides that judgment for no reason other than tidiness.

The window option in your poll is the one I could live with, @warrant. Four to seven gives room to pick a quarter.

@orchard that's true for land and it's not true for a repositioning with a bridge loan behind it. My deals live and die on 18 month timelines and the debt sets the clock, not the partners. If the loan matures in month 24 with two six month extensions, the exit section is already written and everybody's discretion is theoretical.

@flint that's the first thing in this thread that landed for me. So the answer partly depends on the debt, and a fixed 10 year agency loan with prepayment penalties gives you a totally different exit conversation than a bridge?

Yes, and prepayment terms specifically. I've been going through loan documents while studying and the penalty for exiting early on some fixed rate structures is large enough that a hard year five date could cost more than waiting. Confirm the actual prepay language with the lender in writing, because it varies a lot by loan program.

Real problem I'm living right now. Partner and I have no exit mechanism on a small deal and we disagree about selling. He wants out, I want two more years. There's nothing in the paper that resolves it, so we're just having the same conversation every six weeks and both getting more annoyed.

A buy-sell would have ended this in a month. Even a bad buy-sell. Whatever you pick @warrant, pick something.

@quarry that's the part I hadn't considered. I thought the point of an exit clause was protecting against a bad partner. You're describing two reasonable people who just want different things.

Every unit I've owned has taught me that the exit gets decided by something outside the agreement. Roof, refinance, a partner's divorce, a tenant law change. The document matters most in the case where nobody has an emergency and you simply disagree, which is exactly @quarry's situation.

I'd add a distribution requirement alongside whatever exit you choose, @warrant. If cash flow above reserves has to be distributed rather than swept into the operator's discretion, illiquidity hurts a lot less while you wait.

Basic question, and I may be missing something obvious. In the buy-sell, if he names a low price to try to buy me out cheap, I can just buy him out at that low price instead? That seems like it stops the whole trick.

@ember I asked the same thing last month. It stops the trick only if you actually have the cash to buy. If you don't, a lowball price is a real threat and he knows which one you are.

@rigging that's the asymmetry @warrant mentioned in the post. On a 90/10 split the buy-sell mostly runs one direction.

Run the numbers on "reasonable discretion" before deciding it's soft. On $600k of equity, three extra years of hold at a 7% opportunity cost is about $135k of foregone compounding, and no court gets you that back. That's the actual price of an open-ended clause, and I'd rather pay for a date than pay that.

But @orchard's objection stands too, so the version I'd write is a window with a listing obligation and an operator override that requires my consent. Year four opens the window, either partner can require a listing, and extension past year seven takes both signatures. That puts the burden of asking for more time on the person who wants more time.

@ledger's structure is close to what I'd want, with one addition. Tie the window to the debt maturity rather than to closing. If the loan matures in month 60 you don't want your window opening at month 48 and closing at month 84, because the refinance decision and the sale decision collide and now you're negotiating two things at once with your leverage cut in half.

Voting window. @tender, does tying it to debt maturity mean the window moves every time he refinances? That sounds like the operator can push the exit out indefinitely by refinancing.

@sable that's exactly the hole, which is why refinance usually sits on the major decisions list requiring the capital partner's consent. If he can't refi without your signature, he can't move the window without your signature either. The two clauses have to be read together or each one looks weaker than it is.

@windlass and I have been circling this same intersection in another thread. Consent rights and exit rights are the same protection wearing different clothes. A short major decisions list with an open-ended exit is a bad combination, and I don't think people notice because the two sections are twelve pages apart.

Reading the whole thread, the thing that changed my vote was @quarry's situation. I came in wanting operator discretion because I trust the operator I'd work with. Then I realized discretion doesn't fail when the operator is bad, it fails when we're both fine and simply want different years.

Same shift here, @quill. Also worth saying that mechanisms like buy-sell and forced sale rights get complicated fast depending on how they're drafted and what state law does with them, so this is one to put in front of a real attorney rather than assemble from a forum thread.

@pike agreed, though I've found going in with a specific structure in mind makes that conversation much shorter and cheaper than going in with a question.

The distribution requirement @cairn raised is the underrated one for me. If I'm getting quarterly cash while I wait, a seven year window is tolerable. If everything is trapped until sale, then the exit clause is the only thing standing between me and a decade of nothing, and I'd want it much tighter.

This thread taught me more than the two chapters I read this week. I came in thinking illiquid meant "hard to sell" and it apparently means "whoever wrote the exit clause decides how long you wait."