RISKS & QUESTIONS
Know the commitments
before you make one.
Passive ownership still carries investment risk. Review the documents with your financial, legal, and tax professionals.
Liquidity and control
Transfers and redemptions may be restricted. A redemption program does not guarantee that your request will be fulfilled when you want it.
Ask: What lockups, limits, queues, discounts, or suspension rights apply?
Conversion and valuation
You may have limited control over a transaction. Related-party decisions can create conflicts of interest.
Ask: Who decides whether conversion occurs? Can I opt out? How is my interest valued?
Income and principal
Property values and cash flow can fall. Tenant vacancies, operating expenses, and financing pressures can affect distributions. You may lose principal. Distributions are not the same as investment returns and may include return of capital.
Ask: What funds the distribution, and how would a stressed scenario affect it?
Fees and incentives
Compare the full expense structure, including acquisition, financing, management, disposition, and transaction-related charges where applicable.
Ask: What does each party receive, and what portion of my investment reaches the underlying real estate?
Debt and tax protection
A decrease in a partner’s share of liabilities can be treated as a money distribution under Section 752. Whether gain results depends on basis and other tax rules. A tax-protection agreement provides only the protections its terms actually cover.
Ask: Which events are protected, for how long, subject to what exclusions, and backed by whom?
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