Fitch Affirms Gramercy CRE CDO 2005-1.

NEW YORK -- Fitch affirms all classes of Gramercy CRE CDO 2005-1, Ltd. (Gramercy 2005-1) notes as follows:

--$513,000,000 Class A-1 floating-rate affirmed at 'AAA';

--$57,000,000 Class A-2 floating-rate affirmed at 'AAA';

--$102,500,000 Class B floating-rate affirmed at 'AA';

--$47,000,000 Class C floating-rate affirmed at 'A+';

--$12,500,000 Class D floating-rate affirmed at 'A';

--$16,000,000 Class E floating-rate affirmed at 'A-';

--$16,000,000 Class F floating-rate affirmed at 'BBB+';

--$18,500,000 Class G floating-rate affirmed at 'BBB;

--$28,000,000 Class H floating-rate affirmed at 'BBB-';

--$49,500,000 Class J floating-rate affirmed at 'BB';

--$35,000,000 Class K floating-rate affirmed at 'B'.

Deal Summary:

Gramercy Real Estate CDO 2005-1 (Gramercy 2005-1) is a revolving commercial real estate cash flow collateralized debt obligation (CDO) that closed on July 14, 2005. It was incorporated to issue $1 billion of floating-rate notes and preferred shares. As of November 30, 2006, the CDO invests in a portfolio of unrated commercial mortgage whole loans and A-notes (55.72%), B-notes (21.64%), and commercial real estate mezzanine loans (22.64%). The CDO is also permitted to invest in corporate debt of real estate operators and retailers, commercial real estate collateralized debt obligation (CDO) securities, commercial mortgage-backed securities (CMBS), and preferred equity. As of November 30, 2006 the CDO is invested in loans (95.21%) and cash (4.79%).

The portfolio was selected and is monitored by GKK Manager, LLC (GKKM). Gramercy 2005-1 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 July 2010. The collateral manager has the ability to sell 15% of the collateral per year on a discretionary basis during the reinvestment period and may sell defaulted and credit risk securities at any time.

Asset Manager:

Founded in 2004, Gramercy Capital Corp. (NYSE:GKK) is a national commercial real estate specialty finance company organized as a REIT and externally managed by GKKM, the collateral manager for Gramercy Real Estate CDO 2005-1. GKK was sponsored by SL Green, which maintains a 25% equity ownership stake of the REIT and 66% of GKKM. GKK's core assets are direct originations of first mortgage loans, mortgage participations, mezzanine financing, preferred equity investments, bridge and permanent loans and credit tenant lease (CTL) investments. As of November 2006, GKK's total assets under management totaled approximately $2.3 billion. Gramercy 2005-1, which is GKK's first CDO transaction, serves as a source of match-funded, term financing for the company's investment portfolio.

Performance Summary:

Since closing and as of the November 2006 trustee report, the CDO has performed better than expected. The Fitch poolwide expected loss (PEL) is 24.25% as of November 30, 2006, compared to 28% at close. As a result, the reinvestment cushion versus the modeled PEL of 34.5% has increased to 10.25% from 6.5%. The three primary reasons for the increase are the improvement in the loan type composition, more favorable leverage characteristics of the pool and a trend towards cash flow stabilization. Since close, the pool has less B notes, second mortgages and mezzanine debt (44.28% versus 53%) and more whole loans (55.72% versus 42%). Several properties are achieving their business plans on or ahead of schedule. Many loans within the pool have been identified as imminent refinance candidates for conduit programs during the first quarter of 2007.

As expected, with the increase in whole loans, the weighted average spread (WAS) has decreased to 3.631% from 4.9% since close; however, the WAS remains above the covenanted WAS of 2.75%. The weighted average coupon (WAC) has increased since close to 8.251% from 7.7% and continues to remain above the 7% covenant. 14.11% of the loans in the pool are fixed rate loans. The weighted average life (WAL) has decreased to 1.48 years from 3 years since close, implying that the loans will fully turnover during the reinvestment period.

The over-collateralization (OC) and interest coverage (IC) ratios of all classes have improved and are within their covenants, as of the November 2006 trustee report.

Although the composition of the pool has improved, 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 95.21% loans and 4.79% cash. Of the pool, the exposure to whole loans and A notes increased by 14%. The CDO loan collateral has migrated away from B notes (to current exposure of 21.64% from 41%). Mezzanine debt has increased to 22.64% from 12% at presale; preferred equity and CMBS are no longer in the pool.

Since close, the largest percent of non-traditional assets continues to be hotels, and the portfolio's exposure to this property type has increased to 10.41% from 7.2%. The office property type still remains the largest percentage (54.46%) of the loan portfolio. The pool composition is within its covenanted guidelines.

The pool has comparable loan diversity relative to other CRE CDOs. LDI is currently 401 versus its covenant of 500. The largest two loans each represent less than 10% of the ramped portfolio. The pool also has geographic concentration, with 26.46% located in New York and 19.96% of the pool located in California; however the CDO is well within all of its covenants.

The Largest Loans:

The largest loan in the pool (8.5% of the current pool) is a first mortgage on Atlantic Yards, a land assemblage in Brooklyn. The strategy for this asset is to acquire the necessary parcels (currently improved with residential, commercial and industrial properties) for development of an 800M sf (19,000 seat) arena for the New Jersey Nets and a mixed-use development that includes office, residential and retail space. During Q4 2004, the loan commitment was increased and in Q2 2006, Gramercy syndicated a portion of the increased loan amount to two institutional investors. To date 89% of the total committed loan has been funded. As of Q3 2006, the asset is meeting original underwritten expectations as the continued acquisition of identified parcels and approval hurdles progress. The borrower, Forest City Ratner, has reached a Memorandum of Understanding with the City, State, and MTA to acquire certain key development rights and receive public funding for the infrastructure improvements. The project was recently approved by the Empire State Development Corp, which authorized the option of eminent domain if needed to acquire any of the final properties identified for the master planned footprint. The remaining funding will be used to acquire outlier sites, which are not critical to the footprint.

The second largest loan in the pool (6.6% of the current pool) is a whole loan on an office building with basement, first and second floor retail space in Washington, D.C. The property is centrally located four blocks east of the White House. The borrower purchased the property in 1998 and performed significant renovations to convert the interior to class A office and retail space while also adding two additional stories to the building. This first mortgage was used to refinance the renovation loan while the property leased up. The building is reaching stabilization with 87% leased and 64% occupied. Credit tenants have signed leases and occupy 50.7% of total gross leasable area. None of the leases in place expire during the initial or fully extended term of the loan and no rollover is scheduled until 2013. The non-leased space is primarily in the retail portion. The borrower is currently in negotiations with two separate prospective retail tenants. In lieu of a reserve, the loan is recourse to the sponsor for debt service. Several conduit lenders are in discussions with the borrower to refinance this loan. This loan is one of three assets with the same sponsorship, representing 11.4% of the pool. This sponsor was recently tried on seven counts in a federal court. Although he was cleared of six of the charges, he was found guilty on one count of wire fraud. The sponsor is expected to be sentenced on April 16, 2007; however, he is appealing the judgment. Fitch will continue to monitor the sponsor's ongoing proceedings.

Fitch Loans of Concern:

The asset manager recently purchased a loan of concern from the pool per the indenture as a credit risk security. Although the pari passu participation of a $26.3MM first mortgage was current, sales of the Kailua-Kona, HI home site had slowed. The property was fully entitled for future development of 179 one-acre home sites, 110 of which were to be located around a golf course. Given that general market conditions have worsened for home site development, the borrower was not meeting its sales projections. GKK purchased the loan at par plus accrued and plans on restructuring the loan outside the CDO.

One of Fitch's highest loan level expected losses is associated with a second mortgage position (1.8% of the current pool) on a home site land loan in Southern California. This second mortgage credit facility was funded by GKK to provide for infrastructure development of 5,449 acres of land. The site work includes site preparation and grading, street improvements, water improvements, utilities, sewers and drainage. As of September 30, 2005, 84.6% of the land was entitled and the remainder is in the process of entitlements. Upon completion, the borrower intends to sell the finished lots to homebuilders on a bulk basis, as part of four master planned communities in Southern California. There is $235 million of debt senior to this pari passu second position. SunCal Companies is California's largest private developer of master planned communities. Home site sales have slowed given declining housing starts.

Another Fitch loan of concern is a whole loan (1.3% of the current pool) secured by a luxury boutique hotel in San Jose, California. The Fitch stressed debt service is 0.55x and stressed loan to value is 169%. The borrower received tax credits through a program for qualified rehabilitation costs associated with certified historic structures. Proceeds of the tax credits have been used to amortize the loan as well as fund a liquidity reserve. The initial liquidity reserve has been depleted and the borrower is funding shortfalls out of equity. The strategy of this acquisition (14 months ago) was to reposition this boutique hotel and boost occupancy through aggressive marketing efforts. The year to date through August revenue per available room (RevPar) is $90.58 versus the year to date August 2005 RevPar of $65.34.

Rating Definitions:

The ratings of the class A and B 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 C, 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.