Fitch Downgrades 2 Classes of LB 1998-C1; Assigns Outlooks.

NEW YORK -- Fitch Ratings downgrades and assigns a Rating Outlook to one class of LB Commercial Mortgage Trust's commercial mortgage pass-through certificates, series 1998-C1, as follows:

--$43.2 million class J to 'B' from 'BB-'; Outlook Stable.

Fitch downgrades and assigns a Distressed Recovery (DR) rating of the following class:

--$17.3 million class K to 'C/DR5' from 'B-'.

In addition, Fitch affirms and assigns Rating Outlooks to the following classes:

--Interest-only class IO at 'AAA'; Outlook Stable;

--$82.1 million class D at 'AAA'; Outlook Stable;

--$34.6 million class E at 'AAA'; Outlook Stable;

--$51.8 million class F at 'AAA'; Outlook Stable;

--$34.6 million class G at 'AA+'; Outlook Stable;

--$17.3 million class H at 'A'; Outlook Stable.

The $17.3 million class L remains at 'C/DR6'. Fitch does not rate the $3.8 million class M certificates. Classes A-1, A-2, A-3, B, and C have paid in full.

The downgrades come as a result of an increase in projected losses on the specially serviced assets (10.9%) as well as a higher probability of default corresponding to the other Fitch loans of concern (14.1%). The affirmations are due to stable Fitch-expected credit enhancement levels since Fitch's last rating action. The Rating Outlooks reflect the likely direction of any changes to the ratings over the next one to two years.

Four assets (10.9%) are currently in special servicing, three of which (6.3%) transferred subsequent to the last Fitch rating action. The largest specially serviced asset (4.6%) is a retail center in Kansas City, MO, that is real estate owned (REO). As of Oct. 31, 2008, occupancy for the property stood at 31%. The property is included in the site of a proposed new athletic facility and mixed-use redevelopment area, which has received municipal approval and state tax credit approval. No listing broker has been selected at this time, but unsolicited offers have been received for the property. Fitch continues to expect that losses will deplete class M and significantly impair class L.

The second largest specially serviced asset (3.5%) is an REO 152-unit multifamily portfolio located in Smyrna, GA. Occupancy was 12.5% in October 2008 and the properties are reported to be in fair to poor condition, with significant deferred maintenance. The properties are currently being marketed for sale. Fitch expects that low occupancy and deteriorating macroeconomic conditions make losses on the portfolio possible. Fitch will continue to monitor and evaluate workout strategies as they become available for the other specially serviced assets (2.8%), both of which remain current.

Fitch loans of concern total 25% of the collateral balance and include the four specially serviced assets (10.9%). The largest Fitch loan of concern (5.5%) is collateralized by a 336,297 square foot (sf) retail property located in Memphis, TN. The property was 79.3% occupied as of June 30, 2008. Occupancy is expected to drop further when three tenants which have filed for bankruptcy protection (37.7%) liquidate their respective stores. According to the servicer, the borrower is working with three prospective tenants interested in a total of 19,200 sf of space (5.7%). The loan is scheduled to mature Aug. 1, 2009. Fitch assigned a higher probability of default to the loan.

As of the January 2009 distribution date, the collateral balance has been reduced 82.5% to $301.8 million, from $1.73 billion at issuance. In total, seven loans (13.9%) have defeased. One loan (5.5%) matures in 2009; the next scheduled maturities occur in 2012, when five non-defeased loans (9.9%) mature (4.5%) or reach their anticipated repayment date (5.5%). Loans collateralized by retail properties represent 58% of the pool.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.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.