Fitch Rates N-Star Real Estate CDO II, Ltd. 'AAA/A/A-/BBB+/BBB/BB'.

NEW YORK -- Fitch rates the notes of N-Star Real Estate CDO II, Ltd. and N-Star Real Estate CDO II Corp. (N-Star CDO II) as follows:

-- U.S. $236,000,000 class A-1 floating rate notes, due June 2039, 'AAA';

-- U.S. $42,000,000 class A-2A floating rate notes, due June 2039, 'AAA';

-- U.S. $15,000,000 class A-2B fixed rate notes, due June 2039, 'AAA';

-- U.S. $12,000,000 class B-1 floating rate notes, due June 2039, 'A';

-- U.S. $14,000,000 class B-2 floating rate notes, due June 2039, 'A-';

-- U.S. $24,000,000 class C-1 floating rate notes, due June 2039, 'BBB+';

-- U.S. $6,000,000 class C-2A floating rate notes, due June 2039, 'BBB';

-- U.S. $16,000,000 class C-2B fixed rate notes, due June 2039, 'BBB';

-- U.S. $15,000,000 class D fixed rate notes, due June 2039, 'BB'.

The ratings of the class A-1 notes, the class A-2A notes, and the class A-2B notes address the likelihood that investors will receive timely payments of interest, as per the governing documents, as well as the aggregate principal amount by the June 2039 maturity date. The ratings of the class B-1 notes, the class B-2 notes, the class C-1 notes, the class C-2A notes, the class C-2B notes, and the class D notes address the likelihood that investors will receive ultimate interest payments, as per the governing documents, as well as the aggregate principal amount by the June 2039 maturity date.

The ratings are based on the quality and mixture of portfolio assets, structural features, collateral coverage and credit enhancement through excess spread and subordination.

N-Star CDO II is an arbitrage cash flow CDO incorporated to issue approximately $400.0 million of fixed- and floating-rate notes and income notes. The proceeds of the issuance are invested in a quasi-static portfolio of U.S. commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs), and real estate investment trust securities (REITS). As of the effective date, the portfolio was comprised of approximately 71.3% CMBS, 23.7% REITs and 5.0% real estate-related CDOs. The portfolio was selected and is monitored by NS Advisors. Discretionary trading is limited to reinvestment of principal arising from prepayments and sales of credit risk and defaulted securities in an amount up to 10% cumulative of the original collateral balance.

N-Star CDO II is structured as a sequential pay deal with nine tranches of rated debt in seven orders of priority with subordinated income notes receiving residual cash flows. Structural features include four overcollateralization (OC) tests and four interest coverage tests, namely the class A coverage tests, the class B coverage tests, the class C coverage tests, and the class D coverage tests. All OC test calculations net out a percentage of defaulted and written down securities and deferred interest PIK bonds, as well as a percentage of assets rated below investment grade that exceed certain covenanted amounts. N-Star CDO II also contains a reverse turbo feature that becomes effective following the July 2016 payment date. This feature diverts interest proceeds otherwise payable to the income note holders to amortize the notes in reverse sequential order, beginning with the class D notes. Securities with a Fitch rating of 'CC' or lower will be considered defaulted securities.

NS Advisors manages all real estate securities investments for its parent, NorthStar Capital Investment Corp. (NorthStar), which currently oversees over $1.5 billion of investments in real estate and real estate related assets. NorthStar is a privately held firm that invests directly in properties and in real estate operating companies that develop, manage and lease properties. To further leverage its commercial real estate investment management platform, NorthStar, through its wholly owned subsidiary NS Advisors, closed its first CDO in August 2003. N-Star CDO I, a $402 million transaction, is backed by real estate related securities.

For more information, refer to the presale report entitled 'N-Star CDO II, Ltd.', available on the Fitch Ratings web site at 'www.fitchratings.com'.