Fitch Rates N-STAR Real Estate CDO VII, LTD.

CHICAGO -- Fitch assigns the following ratings to N-Star Real Estate CDO VII Ltd. (N-Star CDO VII or the issuer) due 2051:

-- $338,250,000 class A-1 floating-rate notes 'AAA';

-- $54,250,000 class A-2 floating-rate notes 'AAA';

-- $50,000,000 class A-3 floating-rate notes 'AAA';

-- $30,300,000 class B floating-rate notes 'AA';

-- $22,000,000 class C deferrable floating-rate notes 'A';

-- $14,000,000 class D-FL deferrable floating-rate notes 'BBB';

-- $2,000,000 class D-FX deferrable fixed-rate notes 'BBB';

-- $16,200,000 class E deferrable fixed-rate notes 'BB';

N-Star CDO VII is a cash flow collateralized debt obligation (CDO) managed by NS Advisors, LLC, an indirect wholly owned subsidiary of NorthStar Realty Finance Corp. (NorthStar is rated 'CAM2' as an asset manager by Fitch).

The ratings of the class A-1, class A-2, class A-3, and class B notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class C, class D-FL, class D-FX, and class E notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date.

The ratings are based upon the credit quality and mixture of the underlying assets, approximately 90% of which will be purchased or committed to be purchased by the transaction's close. The collateral manager will have 120 days to ramp up the portfolio to the targeted par amount of $550.0 million. The ratings are also determined by the credit enhancement provided by support from subordinated notes, excess spread and protections incorporated in the structure.

The proceeds of the notes will be used to purchase a portfolio of real estate structured finance securities, consisting of approximately 35.45% conduit commercial mortgage-backed securities (CMBS), 20.49% large-loan CMBS, 14.60% ReREMIC CMBS, 13.26% real estate investment trust (REIT) securities, 5.84% REIT bank loans, 2.91% junior real estate interests, 2.73% commercial real estate (CRE) CDOs, 2.73% trust preferred securities (TruPs) and 2.00% credit tenant lease (CTL) CMBS. The quality of the collateral will have a maximum Fitch weighted average rating factor (WARF) of 8.50, which requires that the collateral maintain a minimum weighted-average rating of approximately 'BBB-/BB+'.

N-Star CDO VII will have a five-year reinvestment period during which the collateral manager will be allowed to reinvest the sale proceeds of the collateral that is defaulted securities, written down securities, withholding tax securities, equity or credit risk securities subject to established reinvestment criteria. Principal proceeds not reinvested will be used to pay down the notes pro rata provided the current portfolio balance remains at least 50% of the original portfolio balance, no overcollateralization (OC) test is failing as of that payment date and if an OC test has previously failed for two or more dates, the OC ratio is at least equal to or greater than the ratio on the effective date.

NorthStar is an internally managed commercial real estate company that operates as a REIT. NorthStar's primary activities include investing in subordinate real estate mortgages, originating and managing CDOs, and owning and acquiring properties net leased to corporate tenants. The company's CDO portfolios are made up of a variety of commercial real estate securities, including CMBS securities, REIT fixed-income securities, other commercial real estate CDOs, B notes, mezzanine loans, and CTLs. As of March 31, 2006, the company had more than $3.1 billion in assets under management, consisting of real estate securities and loan positions financed through six issued CDOs, N-Star CDO I, II, III, IV, V, and VI and real estate securities that accumulated under a warehouse arrangement for this, its seventh CDO.

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.