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Equity Participation without Equity: An Analysis of Hope Notes
Heller College of Business, Roosevelt University, Chicago, USA
- 1 Heller College of Business, Roosevelt University, Chicago, USA
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Abstract
The paper examines the case of splitting a defaulted mortgage loan on a commercial property into an A note that earns interest and a B note that earns a return only if the value of the property increases. The B note is known as a “hope note.” The paper shows that the current methods for structuring such a deal often produce a B note that is worthless. A state-preference model is employed.
KeywordsHope NotesAsset ValuationCommercial Real Estate
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