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Rescue Capital for Commercial Properties: A Win-Win-Win Formula

Commercial real estate owners, investors and lenders are facing the challenge of a massive debt maturity wall in an environment of mostly declining values. Many properties are treading on or are underwater and are unlikely to meet maturing debt obligations. It’s an issue the parties involved will continue to face. “Origination data shows that the maturity wall will grow to nearly $1 trillion in 2025 and will ultimately peak in 2027 at $1.26 trillion, suggesting that the issue is unlikely to be resolved soon.”¹

The fallout from COVID-19 and ensuing shifts in commercial real estate (“CRE”) continue to impact the office, retail and hospitality sectors, as stakeholders deal with underperforming assets plagued by tenancy gaps, operating deficits, escalating operating costs, declining valuations and higher barriers to traditional refinancing solutions.

Troubled Assets Are Challenging Stakeholders

Owners who are ill-positioned to refinance, reluctant to turn in the keys, or unable or unwilling to infuse their own fresh capital are looking for a way out of a dire financial situation. Investors in underwater assets are concerned about their investment recovery and the path to preserve value. And lenders generally don’t want the keys back or already have challenged properties or pending foreclosures on their books. Lenders are also navigating expensive alternatives: sell the asset at a loss, hire a third-party asset manager or spend millions to increase the asset’s market value and then sell it.

All these stakeholders must explore their options with troubled assets now. Enter rescue capital, a win-win-win for operators, lenders and the funding sources who become new investors.

The Rescue Capital Solution

Backed by billions of institutional dry powder, rescue capital is a form of emergency funding, typically furnished by preferred equity, mezzanine debt, C-PACE lenders, joint-venture partners, structured capitalizations; it may also be a novel form of sourcing off-balance sheet capital for tenant improvement and leasing costs from loans secured by the tenant and underwritten on the tenants’ credit. In some cases, the solution can be found in the property’s tenant roster with existing or new tenants taking an ownership stake in the property. These funding alternatives are used to stabilize distressed but viable real estate assets or commercial projects facing funding shortfalls when traditional financing is unavailable or no longer viable.

Rescue capital often prevents foreclosure or insolvency, and provides the liquidity necessary to reposition, complete or preserve an investment. By bridging immediate funding gaps, rescue capital enables borrowers to maintain operations, protect asset value, preserve investor confidence and create a path toward future refinancing, recapitalization or a successful sale. Some recent examples include:

A joint venture between Harbor Group International, LLC, The Garrett Companies and Telis Group was formed in January 2025 to fund the $630.5 million recapitalization of a multi-state, 11-asset multifamily development portfolio.²
In 2024, real estate firm Lightstone launched a rescue capital platform aimed at deploying $500 million across multifamily, industrial and hospitality assets nationwide.³
In June 2025, Houston-based Nitya Capital received approximately $700 million in recapitalization for an 18-property multifamily portfolio, executed amid challenging market conditions.⁴
Denholtz Properties launched a $100 million rescue capital fund targeting multifamily projects facing refinancing obstacles, capital shortfalls and operating deficits.⁵

The Formula for a Win-Win-Win

Rescue capital signifies a commitment to reinvestment in commercial properties that have potential for strong ROI in the future, while providing a crucial financial lifeline during periods of financial distress and/or challenging market conditions.

Unlike typical lenders, rescue capital sources typically have both real estate experience and property management expertise, and can offer a favorable debt-relief scenario for asset owners and lenders. In the long run, everyone wins.

Property owners are able to extricate themselves from being financially strained without having to invest funds that are not readily accessible. They may be offered new loan terms, such as a timeline extension or reduced interest renegotiated between the rescuer and existing lender, while the injection of capital confers some protection for the owner against potential tax recapture that may result from foreclosure. Tenants are retained or onboarded, and the building’s value improves along with the physical improvements undertaken or funded by the rescue capital source. Ultimately, this approach allows an otherwise good operator who encountered negative external circumstances to remain in place and work out a new relationship with the rescue capital provider.
For existing lenders, the new funding source may buy the loan at or below par, then restructure it with the operator and remediate the property with an eye toward a future sale or lease-up. The original lender avoids foreclosure and is precluded from having to invest additional capital to improve the property or keep a distressed asset on its books. In certain jurisdictions, a foreclosure may trigger significant transfer taxes and related closing costs.
The rescue capital provider may invest in the asset at a market value and will receive a preferential return typically after the senior debt but before the common equity.

These scenarios are playing out across the United States in all property types and must be implemented with (i) buildings that have strong potential, such as Class A offices or strategically located Class B or C offices, high-demand multifamily properties or hospitality properties that are overleveraged and under-leased (and in some cases, mismanaged); or (ii) assets that are prime for repurposing or conversions, such as office to residential, mall to community center and hospitality to student housing or assisted living. Rescue capital is cushioning the CRE debt maturity wall, allowing owners to salvage some equity, reducing losses for lenders and providing fresh opportunities for investors.

Footnotes:

1: Thomas Mason, “Commercial real estate maturity wall $950B in 2024, peaks in 2027,” S&P Global (September 5, 2024).

2: Harbor Group International, “Harbor Group International, The Garrett Companies and Telis Group Form Joint Venture to Recapitalize 11-Asset Multifamily Portfolio,” (January 15, 2025).

3: Connect CRE, “Lightstone Launches $500M Rescue Capital Platform,” (March 4, 2024).

4: The Real Deal, “Embattled Houston syndicator lassoes $700M CMBS life raft,” (June 6, 2025).

5: Real Estate NJ, “With new $100 million rescue capital fund, Denholtz sees long-term value in solving short-term challenges,” (March 24, 2024).