Fitch Affirms 11 Classes of CBRE Realty Finance CDO 2006-1, Ltd.

NEW YORK -- Fitch has affirmed 11 classes of CBRE Realty Finance CDO 2006-1, Ltd. (CBRE 2006-1) notes following a satisfactory performance review, as follows:

--$375,000,000 Class A-1 floating-rate affirmed at 'AAA';

--$33,000,000 Class A-2 floating-rate affirmed at 'AAA';

--$34,500,000 Class B floating-rate affirmed at 'AA';

--$15,000,000 Class C floating-rate affirmed at 'A+';

--$13,500,000 Class D floating-rate affirmed at 'A+';

--$9,000,000 Class E floating-rate affirmed at 'A-';

--$10,500,000 Class F floating-rate affirmed at 'A-';

--$13,500,000 Class G floating-rate affirmed at 'BBB+';

--$4,500,000 Class H floating-rate affirmed at 'BBB+';

--$24,000,000 Class J floating-rate affirmed at 'BBB-';

--$20,250,000 Class K fixed-rate affirmed at 'BB'.

Deal Summary:

CBRE 2006-1 is a cash flow collateralized debt obligation (CDO) that closed on March 28, 2006. It was incorporated to issue approximately $600 million of fixed- and floating-rate notes and preference shares. The proceeds from the issuance are invested in a portfolio of primarily unrated commercial mortgage whole loans (27.8%), A-Notes (17.2%), B-notes (12.9%), commercial real estate mezzanine loans (17.8%) and commercial mortgage backed securities (CMBS) (19.1%). As of October 2006, there is 5.2% of the CDO held in cash. In addition, CDOs of commercial real estate loans and credit tenant lease loans may also be purchased. The portfolio was selected and is monitored by CBRE Realty Finance Management, LLC (CBRF). CBRE 2006-1 has a five year reinvestment period during which, if all reinvestment criteria are satisfied, principal proceeds may be used to invest in substitute collateral. The reinvestment period ends in April 2011. During the reinvestment period if the collateral manager cannot identify substitute collateral, at the discretion of the collateral manager, the notes may be redeemed either pro-rata if certain criteria are met or sequentially. Following the reinvestment period, interest and principal payments will be made to all classes of notes on a sequential basis, beginning with the class A notes. Discretionary trading during the reinvestment period is limited to 10% of the net outstanding collateral balance per annum.

Asset Manager:

CBRF is the collateral manager for CBRE 2006-1. CBRF is a direct subsidiary of CBRE-Melody, which is in turn a subsidiary of CB Richard Ellis. All of CBRF's senior managers are experienced commercial real estate finance professionals, with several originating from CIGNA Corp.'s Capital Markets Group. One of the distinguishing features of the CBRF platform is access to collateral through its affiliation with CBRE-Melody and access to market information via its affiliation with CB Richard Ellis. Fitch views favorably CBRF's use of both Midland Loan Services, as master and special servicer (rated 'CMS1' and 'CSS1' by Fitch, respectively) and GEMSA Loan Services, as primary servicer (rated 'CPS1' by Fitch).

Performance Summary:

Since closing and as of the October 2006 trustee report, the CDO has performed as expected. The Fitch poolwide expected loss (PEL) is 21.0% as of October 19, 2006, compared to the covenanted 31.625%, and 23.5% at closing. The cushion of 10.625% provides average reinvestment flexibility to the manager. Although the credit metrics of the loans have slightly worsened, as measured by overall debt service coverage ratio (DSCR) and loan to value (LTV), the composition of the loan types has improved. Since close, DSCR has decreased slightly from 1.18x to 1.14x and stressed LTV has increased from 94.7% to 101.2%; however, the pool has less B notes and mezzanine debt (30.7%) than at close (37.7%).

The weighted average spread (WAS) has increased since close, from 3.4% to 3.51%; and it remains above the covenanted 3.0%. The weighted average coupon (WAC) has decreased since close from 7.0% to 6.8%; however, it remains above the 6.75% trigger. 64.0% of loans in the pool are fixed rate loans. The weighted average life (WAL) of loans and CMBS has increased since close from 4.3 years to 4.7 years, closer to the maximum covenant of 5.0 years. The average weighted life of the loans is 3.6 years which implies the loans will fully turnover during the reinvestment period.

The overcollateralization (OC) and interest coverage (IC) ratios of classes A through G remain stable; each class is within its covenant. The IC ratios of classes A through G have also remained stable and each class is significantly over its covenant, as of the October 2006 trustee report.

Upgrades during the reinvestment period are unlikely given that the pool could still migrate to the modeled PEL. The Fitch PEL is a measure of the hypothetical loss inherent in the pool at the 'AA' stress environment before taking into account the structural feature of the CDO liabilities. Fitch PEL encompasses all loan, property, and poolwide characteristics modeled by Fitch.

Collateral Analysis:

The pool consists of 75.7% loans, 19.1% CMBS, and 5.2% cash. The exposure to CMBS increased from 14.6% at closing. The CDO collateral continues to be weighted more heavily towards whole loans and A-notes (45.0%). Of the collateral mezzanine loans and B-notes represent 12.9% and 17.8%, respectively.

Since close, the largest percent of non-traditional assets are still hotels, and the portfolio's exposure to this property type has been maintained (23.6% versus 23.0%). Condominium conversion exposure has increased slightly since close (6.1% to 7%). The office property type still remains the largest percentage (45.3%) of the loan portfolio. The pool composition is within its covenanted guidelines.

There are two loans that represent the largest exposures (each are 6.5% of the CDO). One loan is an A-note on a four-building apartment portfolio located north of Los Angeles, California. The loan has strong sponsors; the portfolio is operated by one of the largest third party apartment property managers in the country. The properties are part of a waterfront community and benefits from its location where developable land is scarce. The borrowers are upgrading this portfolio, spending $7,700 per unit in capital improvements.

The other largest exposure to the portfolio is an A-note, secured by a class 'A' office property, located in San Diego, California. The property is 61% occupied by a single tenant and subject to a ground lease. Ground rent has been abated until 2009. As of November, there is a $20 million reserve account for that loan that covers 8.5 months of debt service and $53 per square foot (sf) for tenant improvements, leasing commissions and capital expenditures. Leasing for the vacant space is expected to be complete in less than a year.

The two condominium conversions in the pool (totaling 5.2%) are both performing as expected. One of the condominium conversions, located in New York City, is awaiting approval by the attorney general. The conversion process is on schedule with the borrower's original business plan. The other conversion is well located just outside of Washington, D.C. Of the 432 units, 28 are under contract and are expected to begin closing in early December. The sales will delever the loan. Sales traffic at this property continues to be strong.

Approximately $7.3 million in CMBS collateral has been added to the pool net of substitutions. The new CMBS collateral is of slightly better credit quality.

Rating Definitions:

The ratings of the class A, B and C notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class D, E, F, G, H, I, J and K notes address the likelihood that investors will receive ultimate interest and deferred interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.

Ongoing Surveillance:

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Derivative Fitch web site at www.derivativefitch.com. For more information on the Fitch Rating Methodology for CREL CDOs, see 'Rating Methodology for U.S. Commercial Real Estate Loan CDOs,' dated Sept. 25, 2006 and also available at www.derivativefitch.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.derivativefitch.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.