Syndication Structure: How to Buy Out Investors Without Refi/Sale

[Kim Hopkins]

Hello! We specialize in multi-tenant light industrial properties. To date, we've self-funded or accepted family investors who have no issues with indefinite hold periods. 

Our objective is to never sell our properties. In addition, we are typically able to secure 15 year terms on our debt. We also work with insurance companies so prepayment before term is typically not an option. At the current low interest rates, it would seem unwise for us to accept any term less than what we are able to secure. We also focus on cash flow, vs appreciation investing, so I would not consider our portfolio to be focused in "value add". 

We'd like to accept outside investors in our next few deals. This is both to give back to friends and family who are interested in investing, and so we can do more / larger deals. We are considering a straight split (maybe 80%/20%GP) or a waterfall (maybe 5% pref and 70/30%GP). Not sure of the numbers yet and this post isn't really about the actual numbers. 

My question is: If Investors typically prefer a shorter hold period, say 5 years for sake of example, is there a way to structure the syndication to allow them to exit at year 5 WITHOUT a sale OR refinance? 

I've seen a structure where there is an annual preferred return, say 5%, but no waterfall split and at year 5, the GP returns the capital and some additional preferred return, say 4% over each year of the hold (in place of the waterfall split). But this is usually a fund that is selling properties and therefore has the capital to do this. I'm concerned we may not have the capital to give our Investors a proper exit without a sale or refinance. 

(Note that I'm not really looking for the answer to "find investors interested in a 15 year hold" since we plan to hold the property in perpetuity and we eventually would prefer to not have outside investors in the deal, with proper compensation to them on an exit of course).

Thanks!
Kim