Ten year hold is the whole point, so what do you do when it stabilizes in year three at a number you'd normally sell into?

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. Mine didn't, and by the time it did I was already at year four and a half with the original exit cap 90 basis points wider. The choice in the poll is a luxury.

@keystone 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 I don't think this thread is pricing that in. Turnover in those tenant bases is higher, collections take more work, and if you're not local you're paying someone to do it. Whatever the tax outcome is, subtract the cost of doing your least favorite job for seven more years than you planned.

I'm trying to pick a lane here, 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 unfair?

@kestrel 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 you vote, the answer is already written in the operating agreement and most people signing them haven't read that far.

Go look at your 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 you have just discovered which way the vote goes. And what "major decision" is defined to include, because a refinance that returns 80 percent of capital is sometimes in that list and sometimes isn't.

I've read agreements where the sponsor had unilateral authority to sell at any time and the ten year hold existed only in the marketing deck. The investors in that deal thought they were voting in this poll. They weren't.