A CMBS modification restructures the loan terms after default or imminent default. Common modifications include term extension, rate reduction, deferred amortization , A/B note split (carving the loan into a current-pay A-note and a hope note B-piece), and required fresh sponsor equity. Most modifications carry a workout fee .
What does the special servicer require?
Documented economic justification. The borrower presents a workout proposal showing why the modification produces better recovery for the trust than foreclosure. This typically requires a current appraisal, a credible business plan with stabilized projections, and often fresh sponsor equity to align interests.
What is an A/B note split?
The original note is split into two pieces. The A-note carries current-pay debt service at a sustainable level; the B-note (sometimes called a hope note) accrues and is repaid only if the property's value recovers. The structure preserves the lender's full claim while giving the borrower breathing room to operate.
What does it cost the borrower?
A workout fee, typically 1.0% to 2.0% of modified principal. Special servicer's legal and consulting fees. Often a fresh equity check from the sponsor. The lock-in period and the cost discipline of working through special servicing are themselves a meaningful drag on the asset's prospects.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11