(One of the heritage buildings in Brisbane (this is not the exact one). Project we exited for 60% total return, approx 20% net ROI P.A, 160 Units)
Some learning on Exits 1.
A few months ago we just exited a beautiful project right on the river. I’d like to share some things to keep in mind to avoid long delays and furthermore, in our case, unnecessary outlandish legal costs.
Our option to extend the agreement coincided with our exit. The clause stated that the caretaker must not be in significant breach during the period of option exercise up till “X date” in order for the option to be valid. Given such, the committee theoretically, had the right to “delay” the acknowdgement* of the option until making sure until the very last day that the team was not in any major breach.
Now, if say we found a buyer in June and we wanted to settle by august, but the options stated that the committee had till December to acknowledge the exercise of such option, we are then in a grey area for a few months as most likely the buyer will not buy until option is exercised. The committee can just wait till December to acknowledge your exercise of the right to extend. Of course, in most cases committees would probably help you along to exercise quickly and not wait till time is up but it’s not their obligation.
Here we highly recommend to either 1.) sell 6 months before options exercise or 2.) sell after options exercise.
*ps I further enquired regarding the validity of the committtee or the chairman’s acknowledgement with my lawyers. From their feedback, it is the investors’ right to option, and the validity of the option exists irrespective of their acknowledgement. Nonetheless, it is market practice that the coming buyer will regard the presence of the acknowledgement as a vote of confidence regarding the project namely in as such that the committee are probably not too unreasonable to deal with and, secondly, the option has been exercised and the term has been extended.
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