The Wilkinson Multifamily Investing team is optimistic that through our disciplined approach to sourcing new acquisition and investment opportunities, our clients will continue to prosper, building on our three-decade-long track record of success in delivering remarkable results for our multifamily fund investors.

Here we will review:

• The Current Landscape of Multifamily Refinancing

• The Role of Rescue Capital | A Critical Lifeline

• The Structure and Benefits of Rescue Capital Deals

• Strategic Positioning for Sponsors and Investors

• Wilkinson's Approach to Rescue Capital Opportunities

The Current Landscape of Multifamily Refinancing

Beginning in mid-2022 and continuing to the present, many multifamily real estate owners have faced challenging conditions as interest rates rose quickly and capitalization rates expanded, putting financial pressure on properties bought or refinanced leading up to the peak in late 2021/early 2022. As short-term loans began to mature, rising interest rates and lower valuations have made it difficult for some owners to sell or refinance without incurring a loss or introducing additional capital to the project. Investors in those projects, many of whom have already experienced capital calls and reduced distributions, have become weary and unwilling to make further capital contributions. 

This has led to a growing need for rescue capital to help fill the gap. 

Though the market has begun to shift in 2025 with early signs of cap rate improvement, challenges from recent years continue. Many owners who financed their properties near the peak of the market are now under pressure as their loans begin to mature, as they face lower valuations and higher interest rates than when they acquired the properties. While recent comments from Fed Governor Christopher Waller hint at possible rate cuts later this year, property owners continue to feel the impact of earlier rate hikes. 

Multifamily real estate syndications, in particular, are encountering significant hurdles as they approach refinancing milestones. Many syndications initially utilized short-term bridge financing, which sometimes included variable-rate loans, and now face the prospect of refinancing at substantially higher rates while being required to contribute significantly more capital from limited resources. This shift can severely jeopardize their financial stability and, sometimes, lead to a risk of default or foreclosure.

The Role of Rescue Capital | A Critical Lifeline

Rescue capital typically enters the capital stack as a type of gap financing, most commonly in the form of preferred equity or mezzanine debt, frequently as properties are being refinanced. This infusion of capital offers a critical lifeline to distressed properties and sponsors facing immediate liquidity or refinancing pressures. The demand for such capital is growing as market conditions continue to strain existing financial structures. Entering the capital structure between lenders and equity holders, preferred equity or mezzanine debt often receives property cash flow, competitive returns, and priority over common equity when properties are sold, resulting in a position with reduced risk for the investor. 

The Structure and Benefits of Rescue Capital Deals

The introduction of rescue capital usually requires existing investors and sponsors to subordinate or concede a portion of their equity position or grant the rescue capital provider a preferred return. While rescue capital dilutes the original stakeholders' share, it preserves some value for those stakeholders; therefore, it is often preferable to foreclosure or sale at a significant financial loss.

Wilkinson's network of relationships, spanning over three decades, serves as a crucial source of rescue capital opportunities. These established connections enable Wilkinson to identify and access distressed assets that might not be readily available through conventional channels. Wilkinson structures these deals with the expectation that Wilkinson investors will receive priority in cash flows, thereby enhancing the security and potential returns of their investments. This priority in distributions reduces investment risk in an otherwise challenging market.

Strategic Positioning for Sponsors and Rescue Capital Investors

As interest rates remain elevated, the role of rescue capital becomes increasingly pivotal in the multifamily real estate sector. It not only aids in stabilizing properties with a distressed capital structure but also offers investors the prospect of substantial returns by stepping in when traditional financing is scarce or unfavorable.

Both sponsors and investors must carefully navigate these arrangements. For sponsors, thorough due diligence on the terms and implications of rescue capital is essential. For investors, it's about balancing the immediate financial need of the distressed asset with long-term strategic objectives to ensure mutually beneficial outcomes. These arrangements demand a clear understanding of the deal structure, risk allocation, and exit strategies to maximize the potential for success.

Wilkinson's Approach to Rescue Capital Opportunities

At Wilkinson, our strategic focus on understanding the evolving multifamily market, combined with our extensive network, enables us to identify and effectively facilitate rescue capital opportunities. Our disciplined approach ensures that we align with both sponsors seeking a lifeline and investors looking for secure, high-potential returns in the current economic environment. We aim to leverage our experience to structure deals that can offer increased stability for distressed assets, while also prioritizing the interests of our investors.

Key Take-Away

As we look ahead, the multifamily market's strong demand, coupled with current refinancing challenges, positions rescue capital as a critical component of market stability and investor opportunity.

• Rescue Capital as a Solution: Preferred equity or mezzanine debt offers a vital lifeline for distressed properties, preventing foreclosures and substantial losses.

• Strategic Advantages: While original sponsors may dilute their equity, it's often a better alternative to total loss. Wilkinson's network provides access to prime opportunities.

• Investor Priority: Structured deals to prioritize cash flows for rescue capital providers, enhancing investment security.

• Navigating the Landscape: Both sponsors and investors must conduct thorough due diligence, balancing financial need with long-term strategic objectives for mutually beneficial outcomes.

Closing Thoughts

As the U.S. multifamily market navigates these complex waters, rescue capital offers opportunities for investors seeking strong returns and potential risk reductions in a challenging but dynamic environment.

By focusing on innovative strategies and understanding local market dynamics, investors can position themselves to thrive in this evolving environment. At its core, real estate investment remains a dynamic field where foresight and flexibility yield the greatest rewards.

Wilkinson’s focus on innovative strategies and community-building initiatives will further enhance the appeal of our properties, fostering long-term growth and stability in the communities we invest in. With a clear vision and strong operational capabilities, we are well-positioned to thrive in this promising new chapter for multifamily real estate.

Ready to explore passive real estate opportunities? Learn how a diversified multifamily portfolio can become part of your passive investing strategy.  Schedule a time to talk with me here

About the Author

David McKinney is the Managing Director and EVP of Investor Relations at Wilkinson. With over $2.5 billion in transactions completed during his tenure, David leverages his strategic insights and emotional intelligence to enhance client and team experiences. Beyond his professional endeavors, he is a husband and father, enjoying outdoor adventures in lakes and mountains near his home in Washington State, and he is actively involved in his community as a Rotarian, committee chair advisory board member reflecting his commitment to leadership and service.

*This does not constitute an offer to sell or the solicitation of an offer to buy securities. Securities may be sold only to accredited investors and only through an offering memorandum. No person has been authorized to give any information or to make any representations in connection with any offering of Wilkinson Corporation’s securities other than the information and representations contained in the offering memorandum. All prospective investors should read the offering memorandum and consult with their own legal, accounting, tax, and financial advisors before deciding to invest.