The strong recovery in commercial real estate has enabled borrowers to resolve a lot of problem loans made before the financial crisis, but Fitch Ratings continues to expect no recoveries from "hope notes" as their structures do not provide sufficient incentive for their borrowers to repay.

Hope notes divide a single loan into two parts: an A note that pays interest and a B note that generally accrues interest until a capital event occurs. Typically, a servicer will require a borrower to contribute additional equity to a transaction before consenting to a modification. This additional equity generally receives a preferred return prior to the B note receiving principal.

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