Grabbing a Lifeline

Project developers and owners facing economic difficulties are looking for alternatives to traditional financing solutions. One possibility is rescue capital.
By Eric Brody
January 25, 2024

In the ever-evolving landscape of the real-estate industry, financial challenges can arise unexpectedly, threatening the viability of projects. These projects, once fueled by grand visions, innovation and investment, find themselves teetering on the precipice of uncertainty. This crisis extends beyond monetary concerns; it tests the mettle of developers, putting their strategies, resilience and creativity to the ultimate test.

Take current economic conditions. An astonishing $8 billion in commercial-mortgage-backed securities loans tied specifically to multifamily properties matured by November 2023, according to a recent report from Gray Capital. Looking further ahead, over the next 24 months, $9 billion in loans are coming due in the Tri-State area alone (New York, New Jersey and Connecticut), $2 billion of which are “at-risk” loans related to multifamily projects.

With capital markets in disarray and distress permeating the real-estate and construction industries, a growing number of owners and developers are seeking creative financing solutions. It is in these moments of distress that rescue capital can offer a capital infusion that paves a path toward stability, recovery and profitability.

Despite the demand for rescue capital, many questions remain about this lending practice, from what it is to how it actually works, and beyond. This guide to rescue capital aims to answer the most frequently asked questions about the subject and offers actionable advice for those who may need to tap into a new source of funding.


Rescue capital is a financial lifeline extended to distressed projects and property owners facing economic hardship. Specifically tailored to situations in which traditional funding channels have become inaccessible due to heightened risk factors, rescue capital serves as a strategic solution to prevent foreclosure or project failure. This type of capital infusion can be delivered through either debt or equity financing, with lenders stepping in to provide the necessary resources. Real-estate developers and owners seeking rescue capital can turn to specialized lenders, private financiers, equity sources or financial institutions that offer this form of financing.

An example of a situation that calls for rescue capital lies in the following scenario: a real-estate developer who initially planned to build a condominium tower offering for-sale units. Unforeseen changes, such as rising interest rates and a softened housing market, require the developer to convert those units into rentals. This shift creates financial complexities, as the original construction lender had planned on being repaid as units were sold.

As a result of the new circumstances, refinancing is now necessary. Given the current hesitancy among traditional lenders, the available choice may involve a “cash-in” refinancing, which requires the developer to contribute extra capital. That’s where rescue capital comes in, providing the funding to get the building across the finish line.


The eligibility criteria for rescue capital will vary for each deal and among lenders. As a general rule of thumb, requirements will include evaluations of the borrower’s credit, the project’s potential for recovery, the value of the property and its marketability. Rescue capital lenders may also consider the borrower’s experience and their track record in completing similar projects.

Additionally, lenders typically will conduct a distress evaluation of both the project and the borrower, assessing key factors including location, the amount of remaining construction and the likelihood of success following a capital infusion.


Rescue capital can be offered in various forms, including bridge loans, mezzanine financing, preferred equity and joint-venture partnerships—each with distinct terms, conditions and risk levels. On the one hand, bridge loans provide short-term relief for the developer while they work to secure permanent funding. Mezzanine financing and preferred equity, on the other hand, involve long-term arrangements and can potentially produce higher returns for the rescue-capital lenders. Finally, there are joint-venture partnerships, which often encompass shared ownership and profits between both parties in the deal.


The terms and conditions of a rescue-capital deal vary deal by deal, as they are tailored to the specific agreement between the lender and the borrower. Terms and conditions of a rescue-capital deal can include the loan amount, interest rate, repayment schedule, maturity date, prepayment penalties, as well as the rights and responsibilities of both the borrower and the lender.


In rescue-capital transactions, ownership and control dynamics will vary based on the financing type. In deals inclusive of bridge loans or mezzanine financing, the lender typically has a less involved role, as they do not acquire ownership or control of the project. However, in joint-venture partnerships and preferred-equity deals, lenders will usually play a more active role as they can gain some degree of decision-making authority in the project.


As with any form of financing, rescue capital carries inherent risks. Risks for lenders include the potential for borrower default and the impact of declining property values, while risks for borrowers include additional debt and potentially a loss of control of their project.

Nonetheless, the benefits of a rescue capital deal are considerable for both parties. For lenders, benefits include greater equity returns compared to traditional lending, shared profits in joint ventures and the opportunity to support distressed projects. Borrowers can experience benefits as well, such as avoiding bankruptcy, safeguarding their assets and maintaining operations on projects that might have otherwise stalled.


Rescue capital may be subject to specific regulations and legal requirements depending on the jurisdiction. For example, a rescue-capital provider located in New York City abides by the relevant laws and regulations related to real-estate finance, lending practices and securities in the state of New York.


Repayment and exit strategies in rescue-capital deals typically involve a plan for borrowers to stabilize projects, enhance their value and secure permanent financing to repay the rescue-capital lender. In some cases, selling the property or seeking additional investment may be chosen as the exit route.


Traditional bank loans, private equity, crowdfunding, seller financing and angel investors or venture capitalists are other financing sources that exist in the market. However, when real-estate developers and property owners find themselves in distress, rescue capital is typically the only financing option available to stabilize the project. The reason for this is that rescue-capital deals offer the opportunity to reposition a real asset and unlock a building’s value in a market where traditional forms of lending cannot afford to take on the risk or underwrite the remaining construction costs.

As the volatility in capital markets continues, it is crucial that developers and property owners understand the nuances of rescue capital. Doing so can allow them to more effectively navigate financial roadblocks, ensuring that their vision comes to life and that their assets succeed despite challenging economic circumstances.

by Eric Brody
Managing Partners, ANAX Real Estate Partners

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