Equity Participation without Equity: An Analysis of Hope Notes

DOI: 10.4236/me.2013.45038   PDF   HTML   XML   4,362 Downloads   5,647 Views  

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.

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J. McDonald, "Equity Participation without Equity: An Analysis of Hope Notes," Modern Economy, Vol. 4 No. 5, 2013, pp. 370-374. doi: 10.4236/me.2013.45038.

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1] A. Yoon, “Hope Note Strategy Is at Times Hopeless,” Wall Street Journal, Vol. CCLX, No. 278, 2012, p. C3.
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[5] J. McDonald, “The Modigliani-Miller Theorem with Financial Intermediation,” Modern Economy, Vol. 2, No. 2, 2011, 5 Pages.
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[8] J. McDonald, “Equity Participation: A Theoretical Analysis,” Journal of Real Estate Portfolio Management, Vol. 18, No. 3, 2012, pp. 247-255.

  
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