Fitch: Retail CMBS Driven By U.S. Consumers & New Concepts.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 17, 2003

Low interest rates fueling U.S. consumer spending and shifting retail property concepts to accommodate shoppers' wants and desires have been the two main drivers of the fundamentally solid performance of retail properties and of the less-than-expected frequency of retail defaults within the commercial mortgage-backed securities (CMBS) market, according to a new report published today by Fitch Ratings. Nonetheless, the future for retail property performance is uncertain given the struggles of the U.S. economy to furnish a sustained recovery and job growth.

"Although retail sales have been below expectations, they have been fundamentally solid given the recent recession and as vacancies across all types of retail properties have risen throughout 2003, rents have generally remained stable and in many instances grown at modest rates," said Joseph Kelly, director, Fitch Ratings. "However, since consumer spending fueled by affordable debt has reached an apex, without a meaningful

economic recovery, the pressure on retail properties' performance in the near future could be troublesome."

The new report notes that the cumulative default rate for retail by loan balance is only 2.6%, and that corporate bankruptcies and strategic vacancies explain much of that figure. Fitch expects the cumulative default rate for retail properties to rise closer to 3.0% in the near future as the natural lag in property performance in relation to that of the overall economy plays out.

Event risk related to large retail tenants present in many CMBS transactions will continue to be a retail characteristic that can have immediate and material effects on deal performance.

"Retail centers with critical mass and cutting edge concepts have and will continue to better weather recessionary pressures," said Kelly. "Strong retail tenants have become increasingly selective and will continue to pursue market expansion to centers that are in tune with consumer preferences and demands."

The new report "Retail's Performance Within CMBS: Is It Really in the Bag?" can be found on Fitch's website at www.fitchratings.com by linking to the "CMBS" sector and clicking on "Special Reports".