Fitch: Record U.S. CMBS Issuance Comes with Higher Vintage Volatility.

CHICAGO -- Total issuance for U.S. CMBS is expected to top $200 billion in 2006, though transactions securitized this year will be more sensitive to future economic downturns due to the higher concentration of more volatile property types, interest-only loans and the more competitive lending environment than other CMBS vintages, according to Fitch Ratings in its Global Structured Finance Outlook report.

Although the 2006 vintage is expected to be more volatile than earlier vintages, a trend Fitch expects to continue in 2007, issuance has and will continue to be robust, with Fitch also predicting CMBS issuance in 2007 to rise 20% to $240 billion.

Along with rising issuance, the number of the CMBS fusion transactions exceeding $3.5 billion has also increased. The trend of larger fusion deal sizes will likely continue into 2007, according to Senior Director Patty Bach. 'Fitch has already seen five $3.5+ billion deals through the first nine months of this year, and expects a total of nine such deals by year-end, compared to five in 2005,' said Bach.

The percentage of interest-only (IO) loans in multiborrower deals continued to rise in 2006 and will also likely follow suit in 2007. Single borrower CMBS has experienced a rise in the esoteric asset types in single-borrower CMBS, such as cell towers and timber, another trend expected to continue in 2007. Additionally, large loan CMBS have included more non-traditional property types in 2006, such as condo conversion loans and merger and acquisition financing loans, as evidenced by transactions made by Toys 'R Us, Lord & Taylor, Albertsons and Mervyn's this year.

CMBS upgrades-to-downgrades (35.5:1 for multiborrower deals through the first nine months of this year, 29:1 for large-loan floaters) will also remain strong, though the rate of upgrades may slow to some extent, and more so for CMBS loans containing non-traditional assets. 'CMBS secured by stable assets will continue to perform well, while those secured by less traditional, transitional properties will remain higher risk,' said Managing Director Mary MacNeill.

From a property type vantage point, performance will remain stable for retail and industrial properties in 2007, while fortunes will continue to turn for the better for office, multifamily and hotel properties.

Fitch's 'Global Structured Finance: 2007 Outlook and 2006 Review' includes asset performance and rating volatility forecasts for the global ABS, CMBS, RMBS and CDO sectors in 2007. The report also evaluates the impact of broader macroeconomic trends on the global structured finance markets and gives an overview of asset performance and credit migration trends over the past year. The report is available on the Fitch Ratings web site at www.fitchratings.com.

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