Updated August 16, 2026
Most owners think the choice is binary: sell the building or keep it. When they want liquidity without a full exit, the option they reach for is a refinance — borrow against the equity and keep everything. In a low-rate environment that worked. At current rates, on a rent-stabilized LA building whose income is capped by ordinance, it frequently does not: the building will not support enough new debt to matter, and the debt service eats the cash flow that made holding attractive.
There is a third option that private LA owners rarely consider and institutional owners use constantly. Sell a portion of the equity rather than the whole asset — bring in a capital partner, take money off the table, and keep a meaningful stake and often operational control. It is not right for most small buildings. On the right one it solves a problem neither selling nor refinancing solves.
You sell a share of the ownership entity rather than the property. A partner contributes capital, you take a distribution, and you continue as an owner — usually with a defined role, defined economics, and a defined exit horizon.
The common structures:
Preferred equity. The partner's capital sits above yours in the payment waterfall and earns a stated return before you receive anything. You keep more of the upside; they take less risk and get paid first.
Joint-venture common equity. The partner buys into the ownership alongside you at agreed terms, sharing risk and upside more evenly. Frequently paired with an agreed business plan and a target sale date.
Majority recapitalization. The partner takes control, you retain a minority interest. Most liquidity, least control.
Liquidity without a full exit. You take real money now and keep exposure to a building you believe in.
You stay in a market you know. No replacement search, no 45-day clock, no learning a new city.
Capital for the business plan. If the building needs a retrofit, a repositioning or a unit-turn program you cannot fund, a partner's money does what a maxed-out refinance cannot.
Partial rather than total tax recognition. The tax treatment depends entirely on the structure and how the entity is set up — and this is precisely the point at which a CPA has to be in the room. Some structures defer more than others, and some produce recognition the owner did not anticipate.
Money that does not have to be repaid on a schedule. Equity is not debt. There is no monthly obligation and no maturity date pointing at you.
Capacity when the income will not support more debt. A rent-stabilized building with in-place rents far below market has limited debt capacity because lenders size to actual income. An equity partner can underwrite the upside — the gap between in-place and market — in a way a lender cannot.
No refinancing risk in three years. Refinancing at current rates on a capped-income asset frequently means a smaller loan than the one you have, which is the opposite of liquidity.
Control, in some form. Even a friendly partner has approval rights: sale timing, major capital spend, refinancing, sometimes the manager. Owners who have run a building alone for thirty years consistently underestimate this.
Complexity and real legal cost. An operating agreement with waterfall economics, decision rights, transfer restrictions, deadlock provisions and an exit mechanism. This is a genuine transaction, not paperwork.
A partner with an exit horizon. Institutional capital typically expects a defined event in three to seven years. You have not avoided selling; you have scheduled it, on someone else's clock.
A smaller share of the upside, in exchange for the money you took now.
A narrower counterparty pool. Fewer parties do this than buy buildings, and they are more selective.
I ask what the money is for, and I ask it literally.
If the answer is "I want to stop doing this," recapitalization is the wrong tool and we should be talking about a sale or an exchange. If it is "I need $2 million for the retrofit and reposition and the bank will not lend it," that is a real recapitalization conversation.
Then we test the simpler options first, because they are cheaper: what does a refinance actually produce, and what does a straight sale net after tax and Measure ULA? Only when both come back inadequate is the complexity of a partner justified.
And before anything is signed, the CPA models the tax treatment of the specific structure and a real estate attorney drafts the exit mechanism. Owners get into these on the strength of the liquidity and get hurt on the terms of the exit.
Thinking about selling? Get a no-obligation evaluation on your building.
Request Free Evaluation →