With a ten year hold as the whole point, what happens when a deal stabilizes in year three at a sellable number

If you refinance out most of your equity in year three, does the ten year clock care? My assumption is the clock runs on when you made the investment in the fund interest, and pulling cash out with debt isn't a sale. But distributions out of a refinance can have their own treatment, and I've seen enough people get surprised by that in ordinary partnerships that I wouldn't want to guess here. That's a CPA question with the actual operating agreement in hand.

I voted refinance and hold, and here's why: I'm at the ceiling on deal count and the constraint is equity, not appetite.

If I sell in year three I recycle the money and do the next one. If I hold ten years I do one deal per decade with that capital. For someone with three or four deals running, the compounding from recycling can beat the tax outcome even after paying full freight, depending on how good your next deal is. My vote rests entirely on that. If your next deal is mediocre, holding wins easily.

Year three stabilization assumes a lease up that behaved. Take an operator whose lease up runs slow: by the time it stabilizes they're already at year four and a half with the original exit cap 90 basis points wider. In that position the choice in the poll stops being a luxury and starts being the only option left.

@samantha_ruiz the recycling math is right until you price the friction. Selling costs you commission, transfer tax where the state has one, and the recapture on whatever depreciation you took, and in a lot of states you'll also eat a reassessment on the buyer's side that shows up as a lower price. I ran this on a small mixed use last year and the round trip cost of getting out and back in was close to 11 percent of the equity. That's a big head start you have to make up on deal two.

Still voted sell, because I've never once regretted having cash and I have regretted being married to a building.

Ten years of managing a small commercial asset in a distressed tract is a real operating job, and this thread is not pricing that in. Turnover in those tenant bases tends to run higher, collections take more work, and an out-of-town owner is paying someone to do it. Whatever the tax outcome works out to, subtract the cost of doing the least favorite job for seven more years than planned.

The point here is to pick a lane, not defend one. It sounds like the strategy only really fits people who wanted a ten year hold anyway, and everyone else is fighting their own instincts for a decade to collect at the end. Is that a fair read?

@aaron_fitz10 not unfair. The tax structure rewards a behavior. If that behavior isn't yours you'll fight it, and people usually lose that fight in year five when something better comes along.

Whatever the vote says, the answer is already written in the operating agreement and most people signing them haven't read that far. Look at the document for three things. What triggers a mandatory sale, and whether a majority in interest can force one before year ten. What the sponsor's promote looks like on a year three exit versus a year ten exit, because if the waterfall pays the sponsor materially better on an early sale that answers which way the vote goes. And what counts as a major decision, because a refinance that returns 80 percent of capital is sometimes on that list and sometimes isn't. Agreements exist where the sponsor holds unilateral authority to sell at any time and the ten year hold lives only in the marketing deck. Investors in a deal like that believe they're voting in a poll like this one. They aren't.