Recapitalisation: more than just a liquidity tool
The role of recapitalisations is evolving, with capital and operational expertise increasingly being deployed to strengthen and institutionalise operating platforms, rather than simply to fill funding gaps.
Increasing capital gaps created by rebased valuables, tighter financing conditions and the growing cost of capex spending to reposition assets have increased demand for recapitalisations across the real estate market.
However, in a keynote interview with PERE, Kieran Farrelly, Global Chief Investment Officer, Real Estate at Schroders Capital, and James MacNamara, Head of Value Add and Alternatives, explain that the opportunity today is about more than just providing capital.
Increasingly, recapitalisations are also being used to access governance and operational expertise needed to help high-quality assets and platforms move into their next phase of growth. This, in turn, reflects the evolving nature of real estate investing more broadly.
As customer expectations rise and operational performance becomes a more important driver of value creation, investors are looking beyond physical assets to the capabilities of the platform managing it. This is creating opportunities for capital providers that can combine flexible funding with operational expertise, institutional discipline and active asset management.
Key takeaways
- Recapitalisations are becoming a growth strategy, not just a liquidity solution. While bridging funding gaps are an important driver of activity today, recapitalisations are increasingly being used to support broader operational improvements and the institutionalisation of real estate platforms.
- Operational capability is therefore becoming as important as the underlying asset. Lessons learned from managing hotels, where value creation increasingly depends on customer experience, pricing, governance, data and management systems, rather than simply the physical real estate, can be applied to sectors across the market.
- A gap is emerging between traditional real estate and private equity-style capital. Recapitalisation investors must be able to underwrite capabilities as well as assets. An effective model combines specialist, often local, operational teams with expertise in the specific sector and market, with broader institutional disciplines.
- An operational mindset is important – the key is not to over-standardise. A self-storage platform, a student housing operator and a hotel business all need operational discipline, but they do not need the same operating model. The objective is to turn a strong but often founder-led business into a repeatable operating platform.
- Success depends on building stronger businesses, not simply refinancing assets. The objective is to create institutional platforms with stronger governance, management depth and operating capabilities, improving both long-term growth prospects – and, for investors, enhancing exit opportunities.
- In Europe, repricing and structural tailwinds in key sectors creates opportunities. In areas such as self-storage, data centres, modern warehousing and other storage formats, penetration remains below the US. Many platforms are still relatively small – and some have been backed by private equity capital that helped them build, stabilise and prove the model. The next phase may require a different type of capital.
This article first appeared in the Recapitalisation special report, published alongside the July/August 2026 edition of PERE.
FULL TRANSCRIPT
Q What is driving the recapitalization opportunity in private real estate today?
Kieran Farrelly: Three things are colliding. Assets have repriced, debt capacity has fallen and managers are finding that business plans require more capital than expected. Sustainability is an important part of that. Capital is increasingly required not only to meet regulation but to future-proof assets and preserve liquidity. That creates an obvious funding need. Historically, a lot of the industry was focused on traditional secondaries transactions to meet these sorts of needs, but these are really just a transfer of interests. The opportunity today is broader than simply plugging a capital gap.
A recapitalization offers the opportunity to change what an asset or platform can do next. If it needs capital to execute capex, expand, professionalize systems or institutionalize governance, then a recapitalization can become a growth capital strategy. The value comes from using capital to build a repeatable operating model around the platform with clear decision rights, reliable data, disciplined capex governance, management depth, aligned incentives and a customer proposition that can scale. The more interesting opportunities are often not ‘broken’ assets; they are good assets or strong platforms with the wrong capital structure for the next phase.
We are not suggesting every secondary is a platform recapitalization opportunity. Rather, within the broader secondaries market, we see a subset of transactions where liquidity, growth capital and operating expertise intersect.
Q How is that shift in recapitalizations playing out?
James MacNamara: Real estate itself is changing. Tenants and customers want more flexibility, better service and a higher-quality experience. That is pushing more responsibility back onto the landlord or asset owner.
Historically, landlords were responsible for the slower-moving layers of a building: the site, structure, skin and services. Tenants took responsibility for the faster-moving layers, including space planning, furnishings, service model and day-to-day experience. That division is breaking down.
That is one reason performance dispersion within sectors is widening and why we hear more about operational real estate, asset-backed private equity and hotelization. The building still matters, but the operating system around it is increasingly critical. Hotels are a useful parallel. In our hotel portfolio, we are underwriting the operating model around the asset, including customer segment, pricing strategy, labor model, brand standards, service culture, cost base and management system. This determines whether the same physical real estate can generate materially different income.
All of this has important consequences for recapitalizations. A simple transfer of interests may be enough where the issue is pure liquidity. But where the opportunity involves an operating platform, the capital provider needs to underwrite capabilities as well as assets. By capabilities, I mean the people, processes, data, incentives, governance and culture, not one talented asset manager or local operator.
Q You mentioned hotels as a parallel. Which elements of the hotel operating model are most transferable to other property sectors?
JM: It is not a model that transfers wholesale. What transfers is the operating discipline. The most important lesson from hotels is that real estate value creation depends on the success of the operations inside the building. Hotels require a shorter feedback loop than traditional real estate. You need a management system that connects daily operating data with weekly commercial decisions and longer-term capex, brand and staffing choices. The lesson is that value creation is monitored and managed through a cadence, not simply through an annual business plan.
Take self-storage. In parts of the market, assets have historically been underwritten more as storage real estate than as customer-facing operating platforms. As the sector institutionalizes, a more operational lens can reveal additional opportunities around pricing, digital customer acquisition, service, branding, local demand capture and ancillary services.
Q In practice, how can investors and managers take advantage of this emerging opportunity set?
JM: The answer has to be bespoke. There is no single operating playbook that can be applied across every sector.
One model is to combine specialist operational teams with broader institutional disciplines. Specialist teams understand the customer, the local market, the operating model and the opportunity. But they also need access to governance, reporting, data, cyber risk, capex management, procurement, sustainability, talent and capital formation. A recapitalization can provide those resources while preserving the entrepreneurial insight that made the platform successful.
The danger is to over-standardize. A self-storage platform, a student housing operator and a hotel business all need operational discipline, but they do not need the same operating model. The objective is to turn a strong but often founder-led business into a repeatable operating platform.
KF: Alignment is equally critical. The KPI set, governance structure and incentive model need to support the underlying business plan. There are useful lessons from private equity, in working with management teams, developing operating playbooks, building governance systems and scaling specialist platforms.
Real estate managers also bring their own disciplines. You still need to understand the asset, the location, the capital structure, the debt, the capex and the exit market. A recapitalization only works when those perspectives are integrated.
That is where the combination of broader perspective and operational specialism becomes important. Specialists see opportunities that others miss. But you also need to test whether the opportunity still makes sense relative to the broader market, the cost of capital and alternative uses of capital.
Q Where do you see the limits of ‘hotelization’ in real estate management?
KF: Hotelization is useful shorthand, but the real point is operational discipline around customer insight, pricing, service delivery, staff engagement, brand and cost control.
In some sectors, direct operation can make sense. In others, it does not, either because the regulatory profile is too complex, the reputational risk is too high, or a specialist operator has scale advantages that a real estate owner cannot replicate.
Care homes are an example of a sector where branding, service, food and procurement all matter, but where regulation and reputational risk demand caution.
There is also a cost-structure issue. A more operational approach can introduce a higher cost base and, in some cases, a greater fixed-cost component and thus higher operating leverage. Hotelization can create value where the customer proposition, service model and operating discipline improve income, but it can also increase risk if applied without care.
JM: The better question for owners is where they can genuinely compete. In some sectors, that may mean direct operation. In others, it may mean partnering with the right operator, structuring the right lease, aligning incentives or providing the capital and governance that allow a specialist platform to grow.
Q How can partnerships position across markets and sectors to capture this opportunity in the years ahead?
KF: The European real estate market has repriced lower, which is a helpful starting point, but we are more focused on pricing longer-term structural trends.
In areas such as self-storage, data centers, modern warehousing and other storage formats, penetration remains below the US. Many platforms are still relatively small – and some have been backed by private equity capital that helped them build, stabilize and prove the model. The next phase may require a different type of capital: less expensive than private equity, but more operationally engaged than traditional core real estate. That creates a gap in the market. These businesses may be too operational or too complex for traditional real estate capital, but too stabilized for private equity return requirements. Recapitalizations can help bridge that gap by providing capital, governance and operating support without losing the entrepreneurial insight that made the platform successful.
JM: The architecture matters because different sectors require different degrees of standardization and agility. That could drive the choice between a vertically integrated model that prioritizes cost efficiency and a partnership model offering bespoke solutions.
The model we find compelling is a generalist capital allocation and governance layer, working with specialist operating teams. The generalist perspective brings relative value discipline, capital markets awareness and the ability to judge when to lean in or pull back. The specialist teams bring the sector insight, local knowledge and operating capability that the generalist may miss.
The structuring disciplines of secondaries still matter: valuation, investor choice, lender consent, governance and exit alignment. The difference in operational real estate is that those disciplines must be paired with deeper underwriting of the platform itself.
Our role is not simply to provide capital, but to help a business build the systems, governance, management depth and institutional credibility required for its next phase of growth. If we do that well, then at exit we are not simply selling a collection of assets; we are exiting a stronger platform, with a more capable management team and a clearer ability to access capital and grow under its next owner.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Topics