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NEW YORK CITY-Rating performance for US CMBS is expected to remain strong for the remainder of this year, according to Fitch Ratings.

During the first six months of 2007, Fitch upgraded 561 classes and downgraded 19 classes of US CMBS bonds, resulting in a 29:1 upgrade/downgrade ratio. Though representing a decline from last year's 35:1 upgrade/downgrade ratio, the first half 2007 numbers still remain strong, says managing director Mary MacNeill.

"The slowdown in upgrades is generally due to adverse selection in older vintage transactions," MacNeill notes. "The market however remains very healthy, with Fitch upgrading seven transactions twice within the first six months of the year."

While Fitch expects seasoned US CMBS to continue performing well in 2007, MacNeill says that "newer vintage transactions containing high concentrations of interest only and highly leveraged loans will likely increase future defaults."

Delinquencies among Fitch-rated CMBS have declined 26% since the beginning of 2007 to 31 basis points as of June 2007. In addition, the majority of US markets continue to show strong real estate fundamentals with declining vacancy, positive absorption of new product, and appreciation.

MacNeill tells GlobeSt.com that one of the reasons US CMBS remains strong is that, "We are still seeing a lot of capital in the market and activities are pretty high so there is still money going after real estate," she says. "All in all, the market seems pretty healthy and we have no indications of that being short term."

First half 2007 rating downgrades were limited to 13 transactions, 11 of which were conduit deals. The conduit downgrades resulted from expected losses on new specially serviced loans or increased losses on loans pending liquidation. The other two being large loan transactions, which had classes on Rating Watch Negative.

Year to date, Fitch has designated 222 US CMBS transactions as "Under Analysis" via SmartView, which is Fitch's review process where deals are reviewed monthly and designated as either being "Under Analysis" or give a current date designation. Over half of those transactions will result in an upgrade and/or downgrade and the remaining transactions being affirmed due to stable performance.

Instant Insights /

Rating Performance Remains Healthy for US CMBS

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