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For The Long Term

This week's commercial mortgage ratings actions

October 1, 2001


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Deutsche Banc Alex. Brown was quoted by Reuters as saying that Investors may want to consider buying AAA-rated, well-diversified commercial mortgage-backed securities, as an alternative to corporate bonds, following the airplane attacks on Sept. 11. Fixed-income investments such as CMBS will offer credit protection for investors worried about further deterioration in corporate profits and credit quality, as a result of the political and economic fallout from the attacks. Yield spreads, or risk premiums, on CMBS have grown from general jitters in the financial markets, but their spreads have not hit the record levels of 1998 at the height of the Russian debt and Long Term Capital Management crises. Moreover, CMBS are cheaper to interest rate swaps than many other securitized fixed-income sectors, they were quoted as saying.

Various classes of GMAC Commercial Mortgage Securities, Inc.'s mortgage pass-through certificates, series 2000-C2 were affirmed by Fitch. The rating affirmations follow Fitch's annual review of the transaction, which closed in August of 2000. The certificates are collateralized by 130 mortgage loans on 158 multifamily and commercial properties. The pool consists mainly of multifamily (30%), retail (30%), and office (24%) properties. GMAC Commercial Mortgage Corp. (GMAC), the master servicer, collected year-end 2000 financials for 111 loans, which represent 78.6% of the pool balance. According to the information provided, the 2000 weighted average debt service coverage ratio (WADSCR) is 1.39 times (x), compared to the banker's underwritten WADSCR for the same loans of 1.36x

Fitch affirmed several classes of Mortgage Capital Funding, Inc. (MCF), multifamily/commercial mortgage pass-through certificates, series 1997-MC2. The affirmations follow Fitch's annual review of the transaction, which closed in November 1997. The certificates are collateralized by 178 fixed-rate loans, consisting primarily of multifamily (42% of the pool's outstanding balance), retail (28%), and office (13%) buildings. As of the September 2001 distribution date, the pool's aggregate principal balance has been reduced by 5.5%, from $870.6 million at closing to $822.2 million. Midland Loan Services (Midland),the master servicer, collected year-end (YE) 2000 financial statements for 147 loans (76% of the outstanding balance). The YE-2000 WADSCR for these loans was 1.74x, compared to 1.53x (for the same loans) at closing.

Five classes of MCF mortgage pass-through certificates, series 1995-MC1 were raised by S&P. The The raised ratings reflect a mortgage loan pool with substantially increased credit support levels primarily through loan payoffs and principal paydowns. GMAC, reported 2000 year-end, or interim, net operating income (NOI) for 100% of the loan pool. Based on 2000 financial information, the WADSCR for the loan pool (based on NOI) is 1.49x, which is down from 1.62x reported for the loans at the time of the last upgrade. Since issuance, the trust only incurred one realized loss of $1 million in the disposition of a multifamily REO asset, which occurred in February 2001.

Resolution Trust Corp.'s (RTC) commercial mortgage pass-through certificates, series 1995-C2 were upgaded by Fitch. The upgrades are a response to the credit enhancement provided by the loans remaining in the pool. Based on the structure of the transaction, excess interest from the loans is allocated to the certificates as principal payments. The certificates are currently collateralized by 137 multifamily and commercial loans. By outstanding balance, the pool primarily consists of multifamily (45%), hotel (17%) and office (15%) properties.

Standard & Poor's (S&P) raised and affirmed classes of Chase Commercial Mortgage Securities Corp.'s commercial mortgage pass-through certificates, series 1997-2. The rating actions reflect improving credit support, due to pay-down and loan amortization, since issuance, as well as the pool's improving collateral characteristics. As of August 2001, the loan pool consisted of 160 fixed-rate mortgage loans with an outstanding pool balance of $714.9 million; down from 168 mortgages, or $813.9 million, at issuance. Retail and multi-family are two of the most common property types representing 37.1% and 27.3% of the outstanding pool balance, respectively. The WADSCR improved to 1.63x from 1.44x at issuance. The largest loan in the pool, located downtown in New York City, was not affected by the Sept. 11, 2001, tragedy at the World Trade Center.

Fitch maintained Rating Watch Negative and affirmed classes of Credit Suisse First Boston Mortgage Securities Corporation's mortgage pass-through certificates, series 1997-C1. Fitch remains concerned about the deteriorating performance of several loans, including the 90-day delinquent loan (3.9%) secured by the Roosevelt Raceway shopping center in Westbury, NY. As of the September 2001 distribution date, the pool's aggregate certificate balance has decreased by 8.2% since origination, to $1.25 billion from $1.36 billion. The master servicer, First Union National Bank (FUNB),reported the yearend 2000 WADSCR at 1.54x, consistent with 1.54x at YE 1999, but above 1.41x at closing.

Classes of Freehold Raceway Mall Trust Series 2001-FRM, commercial mortgage pass-through certificates were rated at 'AAA' to 'BBB-' by Fitch. The certificates represent beneficial ownership interest in the trust, the primary assets of which are three fixed-rate mortgage notes secured by a first mortgage lien on a 1.5 million square foot regional mall in the aggregate principal amount of approximately $177,776,741, as of the cutoff date.

Fitch downgraded, affirmed and put on Rating Watch Negative, classes of Merrill Lynch Mortgage Investors, Inc.'s mortgage pass-through certificates, series 1999-C1. The downgrades and Rating Watch Negative placement are primarily due to expected losses and the deterioration in the transaction's performance. The eighth largest loan in the pool representing 3% of the transaction has been in special servicing for over a year. ORIX Real Estate Capital Markets reported that based on year-end operating statements for 88% of the loans, the WADSCR for 2000 is 1.40x compared to 1.41x at issuance.

Classses of Commercial Mortgage Acceptance Corp.'s series 1996-C1, commercial mortgage pass through certificates were upgraded and affirmed. The upgrades are primarily attributable to significant increases in subordination levels due to amortization, prepayments and matured loans. The pool's collateral consists of industrial (42%), office (34%), and retail (25%) properties. Midland, the master servicer, reported the the year-end 2000 WADSCR increased to 1.34x from 1.28x at YE 1999 and 1.15x at closing.

Fitch affirmed classes of J.P. Morgan Commercial Mortgage Finance Corp.'s mortgage pass-through certificates, series 1999-C8. The master servicer, Midland, collected year-end 2000 property financial statements for 78% of the pool and reported a WADSCR for these loans is 1.65x, compared to 1.37x at origination.

`A' senior debt and `F1' commercial paper ratings of General Motors Acceptance Corp. were placed on Rating Watch Negative by Fitch. This rating action reflects the impact on GM of over-capacity and heightened competition in the auto industry, which has produced a decline in GM's liquidity position, a trend that is likely to persist under the continuing decline in economic conditions. GM has also been unable to reverse losses in its overseas operations, where industry over-capacity continues to impair industry profitability. Core profitability at GMAC Mortgage has been more volatile given the nature of the mortgage banking industry, and Fitch believes that future profitability could be negatively impacted by a downturn in the economy. On a risk-adjusted basis, Fitch had considered GMAC to be undercapitalized at the current rating level, although the parent company has been taking actions to improve this position over the past 18 months.

Fitch affirmed classes of Lehman Brothers-UBS Commercial Mortgage Trust, mortgage pass-through certificates series 2000 C-3. The $1.3 billion in certificates are collateralized by 173 mortgage loans secured by 179 commercial and multifamily properties. FUNB, as master servicer, collected 87% of year-end 2000 operating statements and reported a WADSCR of 1.47x in compared to 1.46x at issuance.

Classes of LTC's commercial mortgage pass-through certificates, series 1993-1 were affirmed by Fitch. The certificates are collateralized by 21 loans secured by 41 health care properties. As of July 30, 2001 the collateral balance had declined 37%, since closing, to $72.0 million. Based on reported net operating income, less a 5% management fee, and actual debt service, the comparable WADSCR decreased 25% to 1.32x from 1.76x in 1999.

Fitch also affirmed classes of LTC's commercial mortgage pass-through certificates, series 1994-1. The certificates are collateralized by 19 loans secured by 37 health care properties. The collateral balance had declined by 53% since closing to $59.7 million. Based on reported net operating income, less a 5% management fee, and actual debt service, the comparable WADSCR improved slightly to 1.56x from 1.55x for year-end 1999.

Classes of LTC's commercial mortgage pass- through certificates, series 1996-1, were downgraded by Fitch. The certificates are collateralized by 28 loans secured by 46 health care properties. As of September 2001, the collateral balance had declined 22%, since closing, to $88.1 million. Based on the yearend 2000 operating performance for 22 of the loans, the WADSCR declined to 1.48x from 1.55x in 1999. Fitch modeled the transaction, taking into account the WA DSCR trend, the diversity of the pool, and the increased likelihood of default associated with those loans with a DSCR below 1.0x or with delinquencies. The results indicated that the transaction's credit quality had deteriorated and subordination levels had not increased sufficiently to maintain the original ratings of the lower classes.

Fitch upgraded classes of Asset Securities Corp's multiclass pass-through certificates, series 1996-CFL. The upgrades reflect the increased subordination levels resulting from a paydown of 14 percent. The certificates are collateralized by 137 mortgage loans, secured primarily by retail (33% by balance), office (30%), multifamily (16%), and warehouse (14%) properties. Midland, the master servicer, collected year-end 2000 financials for 111 loans (79% by balance). The WADSCR for these loans was 1.46x compared to 1.29x at closing.

Fitch affirmed all classes of the $563.0 million GMAC Commercial Mortgage Securities, Inc., Series 2001-WTC following the tragic events of September 11. The transaction, which closed on August 21, 2001, is secured by a first leasehold mortgage lien on the office portions of 1, 2, 4 and 5 World Trade Center. The transaction benefits from a significant potential pool of insurance proceeds of up to $3.3 billion, as well as from documents outlining a decision process for rebuilding and a specific formula to allocate insurance proceeds in the event the project is not rebuilt. Assuming a plan to rebuild is approved by all parties, sufficient funds to cover direct and indirect construction costs, including payments to the existing bondholders, must be obtained. At various stages in the negotiation and discussion, a decision could be made to pay off the bonds in the entirety. Although the bondholders do not have the same collateral as prior to September 11, to date the structural integrity of the transaction appears to be holding up to protect the bondholders under this extraordinary set of circumstances.

Classes of SDG Macerich Properties, LP mortgage notes 2000-1 collateralized fixed and floating-rate notes were affirmed by Fitch, reflecting an increase in the WADSCR. The transaction is secured by six cross-collateralized and cross-defaulted first mortgage loans on 12 regional shopping centers and 1 community shopping center.

Sam Garcia has been in mortgage lending since 1980, and is managing editor of MortgageDaily.com. He also owns and operates CloseNow.com, a real estate portal site.

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