CRE Seeing More Recap Deals as Interest Rates Stay High

The commercial real estate market has seen a flurry of recapitalizations of late, with private equity players — some new to CRE — often at the center of the deals. The recaps are taking form in all shapes and sizes but have a common goal: shuffling the capital stack while enabling property owners to implement upgrades or stabilize assets amid higher-for-longer interest rates. 

The strategy is particularly popular in the office sector, of course. RXR is one firm at the forefront of proactively seeking avenues to best position its assets to contend with interest rates that will likely remain elevated for the foreseeable future. In its latest recap, RXR brought on Sagehall as an equity partner to inject $70 million of fresh capital into its 475,000-square-foot office property at 530 Fifth Avenue and secured a five-year, $110 million loan facility from ING Capital as part of a broader repositioning plan. 

“I have been pretty vocal that, as it relates to office, going through this process wasn’t going to be like 2008 where things were just going to pop back, and that you need to reduce your basis,” RXR CEO and Chairman Scott Rechler said. “The concept for us and proactively with our portfolio was to be in a situation where we work with the lenders to effectively position ourselves to come out of this cycle with a better cost basis with a capitalization plan and leverage that reflects the new normal versus where we were before.”

The recap at 530 Fifth Avenue marks the latest transaction in RXR’s “Project Kodak” — as in digital versus analog — which rolled out in 2023 and involved a review of its office buildings to determine which ones are still worth investing in. 

Elsewhere, after a number of recap deals closed in the latter part of 2024, 2025 kicked off with a behemoth transaction involving Harbor Group International (HGI) forming a joint venture with The Garrett Companies and Telis Group to complete a $630.5 million recapitalization of a 2,192-unit multi-
family portfolio. The apartment projects involved in the recap are in various stages of development across Colorado, Minnesota, Indiana and Arizona. 

Richard Litton, president of HGI, said momentum for recaps is driven largely by owners seeking new capital in the face of higher interest rates, along with many private equity firms seeking investments in sectors like multifamily that currently have strong tailwinds. 

“A lot of owners continue to face situations where the underlying fundamentals for the real estate may look good moving forward but for different reasons there’s some liquidity pressure, and some need to bring new equity in and/or refinance existing debt,” Litton said. “There is still a lot of capital on the sidelines that different firms and funds have available to deploy in real estate. And I think there’s particular interest in multifamily given the strong, forward-
looking fundamentals as the supply absorbs and less new supply enters the market, and there might be less opportunities just to buy assets outright.”

Newmark (NMRK) was ahead of the curve on recaps when the brokerage launched an aggressive push into the sector shortly after the Federal Reserve began hiking interest rates in early 2022 by raising equity financing for platform and programmatic joint ventures. 

Andrew Warin, the executive managing director at Newmark who leads the brokerage’s strategic advisory and liquidity solutions group, said the goal of the business is to work with general partners (GPs) to formulate a capital formation plan that helps achieve goals over three to five years. He said the strategy, which often takes form in a recap, has been largely underserved in the CRE market.

“We’ve become more relevant because interest rates have gone up, and people are having to rethink about their businesses — and, frankly, capital is harder to come by,” said Warin, who prior to joining Newmark spent the bulk of his CRE finance career on the investment banking side at Citigroup. “It’s not a very crowded marketplace because private markets have evolved so fast and so quickly, and there’s not a lot of advisers focusing on the space.”

Elevated interest rates also enabled secondary funds to boost their capital raising by taking advantage of some of the distress in the market while also arming GPs with a bridge to better borrowing conditions, according to Warin. He noted that a large chunk of Newmark’s time in the JV space is now devoted to these secondary funds because of large-scale interest in the private equity space for these vehicles. 

“It’s allowed these secondary funds to raise a lot of money, because the way their capital works is they go to you and they say we’ll recap out some of your legacy [limited partners] that want some liquidity with the understanding that some of the LPs want to stay,” Warin said. “They can take these assets and move them into a new vehicle and give them a sleeve of discretionary capital so that they can continue to scale.”

Litton said recaps have always been a focus for HGI, but that that focus sharpened as interest rates began spiking in 2022 and many other owners were saddled with floating-rate debt.

“There was a lot of use of floating-rate debt in the multifamily sector, so we had expected that ongoing elevated rates should create more and more situations where there were these recapitalization opportunities,” Litton said. “I think where we’ve got strength is in being very opportunistic and able to invest at all different points in the capital stack because, in this general environment with the likely situations where there are more recapitalizations, those take all shapes and forms in terms of providing capital with preferred equity, mezzanine and common equity. They can be quite complicated and require working with a lot of different counterparties.” 

Warin said Newmark has of late focused on GP-led secondary recaps, with a number of private equity firms raising large amounts of money for these funds. Much of the new equity for these strategies has derived from the Goldman Sachs Asset Management’s External Investing Group, Blackstone Strategic Partners and Ares Management, according to Warin.

Newmark has facilitated JV partnerships for recaps across multiple property sectors. That includes the $180 million infusion for RXR’s 530 Fifth Avenue aimed at repositioning the office building for a tenant lease-up from its current 85 percent occupancy rate. 

For RXR’s recent recap, Rechler said the refinance with ING was closed before RXR brought in Sagehall as a new equity partner. He said the negotiations with Sagehall lasted three to four months while communication with the lender stretched back over a year.

“What we have found is when you’re doing these loan restructurings and/or loan extensions, particularly when multiple lenders are involved, there tends to be a lot of moving parts, so it’s very difficult to align with a partner,” Rechler said. “We’ve been closing these on our balance sheet generally and then bringing in partners subsequent to that.”

Another noteworthy recent office recap deal involving RXR consisted of the firm teaming with Hudson Bay Capital in October 2024 to secure a $320 million loan from a consortium of lenders to acquire and recapitalize 620 Avenue of the Americas.

The 620 Avenue of the Americas transaction made RXR and Hudson Bay 50-50 partners in the 700,000-square-foot office and retail property, which faced leasing challenges when its anchor tenants, WeWork and Bed Bath & Beyond, each filed for bankruptcy in 2023. RXR executed 300,000 square feet of leases in the building over a two-year period prior to the recap to get it up to 100 percent leased, according to Rechler. 

Rechler stressed that the many recaps coming to the surface in New York’s office market underscore the recovery of the sector in the Big Apple as more companies seek high-quality buildings while much of the remote-work trend that took flight during the pandemic slowly descends. He said the office recovery now taking place in New York is not necessarily playing out in other big cities. 

“New York is unique because we have extraordinary leasing activity. So, if you can fix the capital structure and invest the capital and you have the right quality building, you know you’re going to lease that building,” Rechler said. “There are not many other markets around the country that I think are in the same situation where you have that clarity and ability to have that conviction.” 

Andrew Coen can be reached at acoen@commercialobserver.com.