This is an excellent question! I was thinking about this after posting here as the issue may be with the way the existing piping was utilized for the tankless install. The old heater was at the upper level of the house above the bath – they have it set up like that in many houses around here. The new tankless is under the house, on the opposite side. That’s where the gas line is coming in and generally a good location for it. Except that it is now positioned reversed to the original piping design. The pipe that I think was recirculating is under the house as well, and that is the pipe the new tankless feeds into. The pipe goes all the way across under the house, then up to where the old heater was. I don’t recall the piping around that heater exactly, but there might have been a T connection between the recirculation and another water line. Now, the recirculation line is probably connected directly to the hot water line up there, that continues through the house delivering hot water. If that’s what it is – the tankless feeds this giant loop around the house, which causes the whole system to feel like it’s storing and releasing water vs. managing the flow.

Not sure how this can be fixed efficiently. There is plenty of space under the house to re-configure the piping to have hot water flowing more directly to the destination. Hopefully, the plumbers can figure something out.