In the wake of the ongoing COVID-19 pandemic, Congress has enacted various legislation in an effort to provide critical assistance to individuals and businesses. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act“)1 is the largest economic stimulus package in United States to date. Additionally, the Federal Reserve has instituted a number of loan facilities to provide certain borrowers access to alternative sources of financing during the economic challenges of the COVID-19 pandemic.2 However, until now, there was no proposed legislation to aid the approximately $16 trillion3 commercial real estate (“CRE“)4 debt market or the $550 billion5 commercial mortgage-backed securities (“CMBS“) market. As a result of the COVID-19 pandemic, CRE transactions decreased 68% overall in the second quarter of 2020 as compared to the second quarter of 2019 and CRE transactions secured by hotel properties decreased by 91% during the same time period.6 The CMBS delinquency rate climbed to 10.32% in June 2020, which was just a shade below the historical high of 10.34% from July 2012.7 Although the delinquency rate fell moderately to 9.60% in July 2020, the decrease was largely the result of approximately $8 billion in loans that were cured in July 2020 by way of loan modifications, reserve releases and other remedial measures.8

On July 29, 2020, Texas Congressman Van Taylor, alongside Kentucky Congressman Andy Barr, Florida Congressman Al Lawson, Minnesota Congressman Jim Hagedorn and Tennessee Congressman David Kustoff, introduced the Helping Open Properties Endeavor Act of 2020 (the “HOPE Act“)9. The HOPE Act seeks to establish a lending facility to provide borrowers with CRE debt financial assistance through temporary liquidity guaranteed by the Department of the Treasury. More specifically, the HOPE Act proposes to allow eligible financial institutions to purchase preferred equity instruments issued by eligible CRE borrowers in an amount up to 10% of the related CRE loan, and the Secretary of the Treasury will guarantee 100% of each purchase. The facility would be funded through amounts already appropriated for providing liquidity to eligible businesses under Section 4003(b)(4) of the CARES Act.

Borrower Eligibility Requirements:10

To be eligible for relief under the HOPE Act, borrowers must generally establish that the COVID-19 pandemic created an adverse effect on their business and that the revenue from the property in question was not significantly reduced immediately prior to the pandemic. Additionally:

  • The conflicts of interest rules under the CARES Act apply to the borrowers.
  • The borrower must have cured any defaults from the prior year as of March 1, 2020.
  • Between March 1, 2020 and February 21, 2021, the borrower must have a three month period with at least 25% less revenue that the same period in the prior year.
  • The property in question must have had a debt service coverage ratio of at least 1.30 to 1.0 in 2019 or30 to 1.0 in 2017 and 2018.
  • The borrower or parent entity cannot have acquired the property after March 1, 2020 through a foreclosure proceeding and the property cannot be owner occupied, except for certain permitted de minimis
  • The financial institution and Secretary of Treasury must receive a “bad boy” guaranty from an approved guarantor, which should include indemnification provisions for borrower fraud, misappropriation, misapplication of funds received, intentional waste, or failure to comply with the Secretary of Treasury’s requirements for redemption of the preferred equity instrument.
  • The borrowers receiving assistance must immediately issue a public statement announcing receipt of funds under the HOPE Act.

Financial Institution Eligibility Requirements:11

The financial institutions eligible under the HOPE Act include any institution authorized to make and approve Paycheck Protection Program loans under Section 1109 of the CARES Act, any national banking associations and any other institution deemed appropriate by the Secretary of Treasury. Further requirements include:

  • Financial institutions must make funds available within 14 days of approval for the borrower to use for any expenses that will benefit the related property.
  • The financial institutions will receive 1% of the outstanding preferred equity amount as a servicing fee.
  • Subject to certain caps, the financial institution will be reimbursed by the Secretary of Treasury for origination.
  • Similar to the Paycheck Protection Program, the purchase of the financial instrument will result in a 0% capital charge.12
  • If a borrower misses a payment, the financial institution must provide notice of a payment default within 5 days and the borrower will have 30 days to cure the default or face an increased interest rate. If the servicer fails to increase the interest rate or notify the borrower for a period of 3 months or more, the servicing fee will be reduced to 0.5% of the outstanding preferred equity amount.
  • The federal government will reimburse the financial institution for a portion of the preferred equity amount. However, if a borrower defaults on 90% or more of the amount drawn, the financial institution will have to repay the reimbursement.
  • The financial institutions may charge additional fees or require additional collateral other than liens on the related property.

Financial Instrument Requirements:13

The financial instrument must be preferred equity that the federal government guarantees and is designed to avoid the limitations that many CRE borrowers face due to limitations on additional debt issuance contained in traditional CRE loan covenants. Additionally:

  • The preferred equity may be worth up to 10% of the outstanding debt of the borrower.
  • The preferred equity must be unsecured, subordinate to any existing perfected loans and unsecured debt, and will not provide for management and approval rights or the right of foreclosure.
  • The preferred equity must have a 7-year amortization period beginning on the date the first payments are due, which must be no later than the earlier of two years after the date all funds have been drawn or one year after the date of the instrument.
  • The interest rate is 3% and subject to an increase to at least 3.5% and no more than 13.0% should the borrower fail to make any required payments, with the amount of the increase depending on when the default occurs. All default interest will be payable to the Secretary of Treasury.
  • The borrowers can redeem the preferred equity at any point without penalty, subject to certain mandatory redemptions upon transfers of 50% or more of the ownership in the related property.
  • The borrowers must redeem the preferred equity before making any dividend or loans to other equity holders or affiliates and before increasing any management fees to affiliates.

Potential Limitations of the HOPE Act

The HOPE Act has potential to provide assistance to the CRE market through the preferred equity lending facility; however, it is important to note some of the potential limitations as currently drafted, including:

  • The financial instrument must be drafted to avoid the categorization of additional indebtedness under most CMBS loan documentation and as the CRE Financial Counsel noted “the bill still needs tweaking, since its description of preferred equity sounds too much like additional debt that could violate existing loan covenants”.14
  • To satisfy the Borrower Eligibility Requirements, the property in question must have had a debt service coverage ratio of at least 1.30 to 1.0 in 2019 or 1.30 to 1.0 in 2017 and 2018; therefore, more recently originated CRE loans will not be eligible to participate in the preferred equity lending facility.
  • The Department of the Treasury guarantees that it will purchase the financial instrument at par, plus unpaid interest, less the reimbursed origination amounts, at the end of the 10-year period beginning on the date on which the financial institution purchased the financial instrument which possibly creates a scenario whereupon a payment default by borrower, the financial institution may have to wait 10 years without any return on its investment (other than the annual 1% servicing fee).


1. Pub.L. 116?136, H.R. 748, 116th Cong. (2020).

2. The loan facilities provided by the Federal Reserve include: the Term Asset-Backed Securities Loan Facility, the Paycheck Protection Loan Facility and the Main Street Loan New Loan Facility.

3. Wiltermuth, Joy (March 25, 2020). Why the commercial mortgage bond market looks dire right now. MarketWatch.

4. CRE typically consists of assets including office buildings, retail/restaurant centers, multifamily complexes, undeveloped land, and other properties such as hotel, hospitality and medical developments.

5. Garcia, Jason (August 13, 2020). Debt-ridden hotels lobby for taxpayer bailout. Orlando Sentinel

6. Real Capital Analytics.

7. Trepp CMBS Research, “CMBS Delinquency Rate Surges for the Third Month; Nears All-Time High”, July 2020,

8. Trepp CMBS Research, “CMBS Delinquency Rate Sees Biggest Drop in More than Four Years”, August 2020,

9.Helping Open Properties Endeavor Act of 2020, H.R. 7809, 116th Cong. (2020),

10. See, Section 2 (b), (h) and (j), Helping Open Properties Endeavor Act of 2020, H.R. 7809, 116th Cong. (2020),

11. See, Section 2 (c), (d), (g), (h), Helping Open Properties Endeavor Act of 2020, H.R. 7809, 116th Cong. (2020),

12. See, Section 2 (i), Helping Open Properties Endeavor Act of 2020, H.R. 7809, 116th Cong. (2020),

13. See, Section 2 (c) and (e) , Helping Open Properties Endeavor Act of 2020, H.R. 7809, 116th Cong. (2020),

14. Commercial Mortgage Alert, “Lobbyists Kept Busy in DC, States”, July 31, 2020.

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