With the sunset gone, QOF term sheets are starting to read like open-ended holds

Every extension clause I've seen gets used, and it gets used because of construction, not because the sponsor is greedy. On a heavy rehab in a designated tract I ran, the scope grew from unit interiors to a full electrical service upgrade once the inspector was in the building, and that alone pushed stabilization out eleven months. A hard sale date in year ten on that timeline would have meant selling a half-leased building. What I'd want instead is the extension tied to something measurable, like occupancy or a debt service coverage number, so the manager has to show me why the clock moved. Open-ended two-year renewals with no test attached is just a fee tail.

Harrow's condition-based trigger is the version worth fighting for, and the drafting is harder than it sounds. If the extension test is occupancy, name the measurement date, name who certifies it, and say what happens when the test fails, because plenty of agreements state a test and then attach no consequence to failing it. On the appraisal redemption route, the clause is only as good as three things written down. Who selects the appraiser, whether the valuation is of the asset or of the fractional interest, and how long the fund has to fund the payment. A five-year payout note at a rate the manager sets is not a redemption right. One more thing worth checking before anyone gets attached to a vote threshold. Whether members can compel a dissolution and what fiduciary duties the manager owes are governed by the LLC statute of the state of formation, and those statutes vary a lot on how much of that can be waived in the agreement. Delaware permits far more contractual waiver than some others. A lawyer in the formation state should read the waiver language, because that is where an expected vote can disappear.

It's easy to start out thinking permanence is straightforwardly good for a passive holder, and easy to end up less sure. Removing the cliff removes the thing that made the sponsor and the investor want the same event on the same date. Interests align on the way in and then diverge at year ten. The investor vote option is the one worth favoring, because a deadline nobody can move is scary and a manager nobody can check is worse. Fathom, in the two agreements with uncapped extensions, is the manager still earning an asset management fee during extension years, or does the fee step down?

Reading this from outside, and the thing that lands is that a ten-year commitment with no defined exit is a much bigger ask than the tax benefit made it sound.

So the ten year clock runs on the investor's timeline while the decision to sell sits entirely with the manager. That is the part easy to miss.

Vellum has it, and the way I test for it is to ignore the clause and look at the sponsor's completed cycles. Ask for every fund they've raised, the vintage, and what happened to investor capital at the end of each one. If the answer is that nothing has been fully realized yet, then the exit language in the agreement is the only evidence you have and it should be tight. If they've closed out three prior vehicles and returned capital roughly when they said they would, I'll trade some of the drafting protection for that record.

I voted for the investor vote. A hard deadline is a blunt instrument and I've watched a forced sale date get priced in by every buyer in the room once the deadline became public. A majority vote at least means a sale happens when the holders want it, and it survives a bad market year without anybody being able to sit on the asset forever.

Where I'd push back on Warrant slightly. The vote is worth less than it looks if the sponsor's affiliates hold interests that count toward the majority, or if the agreement lets the manager solicit consents individually rather than at a meeting with disclosure. Check the definition of the voting class before you count on the arithmetic.