- July 2009: Vol. 21 No. 7

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They Asked You to Do What?: Tough Times Call for a New Look at Fund Terms

by John Kuhl and Amy Wells

John Kuhl and Amy Wells, partners at law firm Cox Castle & Nicholson, answer this month’s reader’s question: “Current economic conditions are prompting many real estate fund sponsors to ask investors to approve modifications to fund terms. Although the requests vary, what are some common issues investors should consider when evaluating the fund sponsor’s proposed changes? What should investors ask for in return?”

Times are tough for investment funds — financing is hard to find, pricing gaps limit the number of attractive transactions, investors want to limit contributions (denominator effect, anyone?) and fund sponsors are scrambling. As a result, fund sponsors are increasingly asking investors to agree to modifications to existing fund terms. Investors who are approached with these requests may, in turn, request modifications of their own as a condition to consenting to the fund sponsor’s changes. Below are some common requests from fund sponsors a

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