Who decides when to 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, @dmitri_248. Four to seven gives room to pick a quarter.

@karen_whitfield 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.

@joe_delgado5 that's the piece that changes the analysis. So the right exit structure partly depends on the debt, and a fixed 10 year agency loan with prepayment penalties should produce a very different exit conversation than a bridge loan would?

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.

A common version of this: a partner and an equity side have no exit mechanism on a small deal and disagree about selling. One side wants out, the other wants two more years. Nothing in the paper resolves it, so the same conversation repeats every six weeks with both sides more annoyed each time. A buy-sell clause tends to end this within a month, even a rough one. Whatever mechanism gets chosen @dmitri_248, choosing something beats leaving it open.

@carlos_nunez that's the part worth sitting with. The instinct is that an exit clause protects against a bad partner. What you're describing is two reasonable people who simply want different things, and that calls for a different kind of clause.

A long hold tends to teach the same lesson: the exit usually gets decided by something outside the agreement. A roof, a refinance, a partner's divorce, a tenant law change. The document matters most in the case where nobody has an emergency and the parties simply disagree, which is exactly @carlos_nunez's situation. I'd add a distribution requirement alongside whatever exit you choose, @dmitri_248. If cash flow above reserves has to be distributed rather than swept into the operator's discretion, illiquidity hurts a lot less while everyone waits.

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.

@bmoreno23 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.

@megan_doyle15 that's the asymmetry @dmitri_248 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 is soft. On $600k of equity, three extra years of hold at a 7 percent opportunity cost is roughly $135k of foregone compounding, and no court gets that back. That is the actual price of an open-ended clause, and paying for a fixed date up front is usually cheaper. The objection to a hard date stands too, so the version worth writing is a window with a listing obligation and an operator override that requires the equity partner's consent. Year four opens the window, either partner can require a listing, and any extension past year seven takes both signatures. That puts the burden of asking for more time on the person who wants more time.

@hannah_west29's structure is close to the right shape, 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 leverage cut in half.

Voting window. @sonia_alvarez, 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.

@chriswalton8 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.

@luis_carrera 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 shifts the vote is @carlos_nunez's situation. Wanting operator discretion makes sense when the operator is trusted. But discretion doesn't fail when the operator is bad, it fails when both sides are fine and simply want different years.

Same shift here, @tashaford30. 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.

@jordan_ellis2 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 @renee_dubois 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 is a good illustration of what illiquid actually means in a JV. It is easy to read illiquid as hard to sell, when in practice it often means that whoever wrote the exit clause decides how long the money waits.