Rescue Capital Real Estate Transactions: Tax and Non-Tax Considerations

Heading into the second half of 2025, it is clear that inflation, interest rates, decreased valuations, and geopolitical unrest, together with the uncertain future of major asset classes (particularly office and retail), will lead to a wave of distressed real estate transactions. This may result in a familiar pattern of workouts, bankruptcies, and foreclosures relating to existing indebtedness. There is also a less familiar trend emerging: rescue capital transactions.

Many real estate ventures with positive cash flows will find the need for recapitalization due to the current market environment where refinancing is unavailable, debt maturity may be approaching, and current valuations make dispositions unattractive and impracticable. At the same time, private equity firms and other alternative sources of capital, including family offices, have an unprecedented amount of "dry powder" in their reserves, and an interest in filling the gap.

These developments are generating great interest from both existing owners and potential investors in so-called "rescue capital" real estate transactions. Rescue capital real estate transactions, often structured as a hybrid between equity and debt, may present a number of important tax and non-tax considerations for both existing real estate investors and the investment sources looking to opportunistically provide such rescue capital.

Listen as our panel discusses key tax and non-tax considerations for rescue capital real estate transactions and provides planning techniques and considerations for parties engaged in such transactions.

I. Rescue capital structured as equity: modifications to the capital stacks

II. Managerial control issues and tax elections

III. Debt verses equity characterization considerations

IV. State and local tax planning and pitfalls

The panel will discuss these and other key issues:

• Many real estate investment vehicles are suffering from an "equity gap" in their capital structure due to inflation, higher interest rates, economic uncertainties, and changing real estate usage.
• As a result, many properties with solid fundamentals are no longer financeable without an infusion of equity or equity-flavored debt. Lenders are much less willing to "extend and pretend" and many existing owners do not want to sell based on current valuations but will accept a "squeeze-down" to survive.
• "Rescue capital" is aggregating to provide the missing capital, but these transactions will require an understanding of complex "dirt" tax, finance, and insolvency issues.

Learning Objectives

After completing this course, you will be able to:

• Identify the tax implications of loan modifications under the tax code
• Ascertain what loan amendments might be deemed significant modifications resulting in a constructive exchange of old debt for new
• Recognize the tax issues that arise in foreclosures and debt-for-equity transactions
• Understand the tax challenges and available tax planning techniques when acquiring distressed real property

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business, law or public firm experience at mid-level within the organization, overseeing and structuring investment transactions in U.S. real estate; supervisory authority over other attorneys, preparers/accountants. Familiarity with different types of ownership entities and structures and related tax consequences for buyers and sellers of real estate.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).