Continued HOPE of a New CRE Preferred Equity Facility

A new bipartisan bill was recently introduced called the Helping Open Properties Endeavor (HOPE) Act of 2020. It will require the Treasury to guarantee certain preferred equity investments in commercial real estate borrowers affected by the COVID-19 pandemic. The bill includes the following revisions to a previous bill circulated in early July:

Changes in Borrower Eligibility Requirements

  • Previously the bill limited aid to properties that were not distressed before the pandemic.  The revised bill only prohibits borrowers that were in uncured monetary default as of March 2020

  • Originally the bill stated that owner occupied commercial properties could not receive aid.  Now, the bill includes properties where the owners maintain small management offices in the building

Preferred Equity Instrument Terms

  • The new requirement states that the preferred equity instrument must not be secured by the property securing the commercial mortgage.

  • The revised bill increased the annual interest rate from 2.5% to 3%. The increase is transferred to the Treasury.

Payments to Financial Institutions

  • A financial institution must repay its origination fee if the borrower defaults on 90% of the amount that the borrower draws down.


  • Adding a provision that requires a financial institution to sell its preferred equity instrument to the Treasury within 90 days after the related property foreclosed on by its mortgage lender

  • A requirement that any borrower receiving financial assistance under the Act must immediately issue a public statement announcing such assistance

  • A new provision allowing a financial institution to charge additional fees to a borrower from which it purchases a preferred equity interest.

#Economy #CapitalMarkets #Covid19 #HOPE

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