Bringing Broken Capital Stacks Back to Life
How Developers Are Re-Capitalizing Stalled Projects Without Selling in 2025
There comes a moment in every cycle when even the most experienced developers pause and reassess the ground beneath their feet. Over the past two years, rising rates, shifting lender priorities, and sudden cost changes created a wave of stalled or partially completed projects across California. Many developers found themselves holding well-conceived plans that no longer aligned with the capital structures originally set in place. Yet what is interesting today is how many of those projects are finding a second life without being sold off or abandoned.
The new environment has pushed developers to rethink how they approach capital, and the solutions emerging are far more flexible and creative than those used in past downturns. This moment is not about cutting losses. It is about rebuilding momentum.
Why Capital Stacks Are Breaking in the First Place
To understand how to fix a broken capital stack, it helps to look at why so many fell apart. Sharp increases in interest rates forced senior lenders to reduce leverage, leaving unexpected gaps. Construction costs stabilized but did not fall, which squeezed contingency budgets. Appraisals became more conservative. Some lenders paused programs or exited asset types entirely.
As a result, many projects that once penciled suddenly carried new funding requirements midstream. Developers with partially completed commercial or mixed-use projects felt the strain most intensely. Equity partners became more cautious, senior lenders cut proceeds, and traditional bridge capital demanded higher returns than many deals could absorb.
A stalled project rarely fails because it lacks relevance. More often, it fails because the original capital structure no longer matches the market realities of the moment.
Why Selling Is No Longer the Only Way Out
In the past, selling a stalled project was the default move. But today’s environment is different. California’s long-term fundamentals remain attractive, and the underlying demand for multifamily, industrial, and certain retail segments is still present. Developers recognize that selling mid-construction almost guarantees a discount, and many simply do not want to walk away from years of planning.
What has emerged instead is a new willingness among both borrowers and capital providers to restructure deals. That has opened the door to a wide range of recapitalization strategies that help projects move forward while preserving ownership.
Preferred Equity Is Playing a Much Larger Role
Preferred equity has become one of the most common tools for filling broken capital stacks. It gives developers the ability to inject capital above senior debt without diluting their position as heavily as traditional equity. For lenders, the structure is attractive because it provides clear payment priority and defined exit paths. For developers, it allows time to stabilize projects and recover value that might otherwise be lost.
This type of capital is especially effective for projects that are already underway and need completion funds, or for sites where entitlements have created substantial value that should not be sacrificed.
Rescue Capital Is Returning in Creative Ways
Rescue capital once carried a somewhat harsh reputation, but 2025 has reshaped how it is viewed. Instead of being a last resort, rescue capital has become a strategic lifeline for promising projects caught in temporary dislocation.
This capital often comes from private lenders who understand the complexity of commercial development. They are more willing to step into incomplete situations, refinance out tired senior lenders, or take out previous mezz pieces. The goal is simple: remove pressure, restore liquidity, and create breathing room so the project can reach its next stage.
Rescue capital works particularly well for developers who still believe in the long-term viability of their project and simply need a financial partner willing to meet the project where it is today, not where it was two years ago.
Joint Ventures Are Giving Developers New Paths Forward
Another approach gaining traction is the creation of strategic joint ventures. Instead of starting over or selling, developers are inviting operating partners or investment groups into the deal on terms that protect both sides. These partnerships often combine capital, expertise, and construction management strength to push the project through the finish line.
For developers, the advantage is that they retain meaningful ownership while reducing the burden of solving every financial and operational challenge alone. For investors, it provides access to projects with built-in value that simply need stronger capitalization.
Refinancing to Reset the Clock
For some stalled projects, the most practical solution is a refinance with a more flexible lender who understands the project’s story. These lenders can restructure timelines, interest reserves, and future funding schedules to better match real construction conditions. Once the pressure of an outdated loan structure is removed, developers often find they can move forward more confidently.
This option is especially helpful for projects that remain fundamentally strong but suffered delays or cost adjustments due to market shifts.
Why 2025 Is a Better Year for Re-Capitalizing Than Many Expected
There is a noticeable shift happening in the market. Private lenders, family offices, and specialized funds are actively looking for opportunities where they can support experienced developers facing temporary capital gaps. They recognize that California real estate is entering a new cycle, and they want to be positioned before momentum fully returns.
That creates a unique window for developers who are willing to restructure their deals rather than sell. Capital is becoming more open to these situations because they offer a balance of safety, clarity, and upside.