Fitch Ratings Downgrades Mortgage Capital Funding 1997-MC1 Class J.

Business Editors

CHICAGO--(BUSINESS WIRE)--Sept. 6, 2002

Fitch Ratings downgrades Mortgage Capital Funding, Inc.'s multifamily/commercial mortgage pass-through certificates, series 1997-MC1 $9.9 million class J to 'C' from 'CCC'. As a result of this action, the class is removed from Rating Watch Negative. In addition, Fitch affirms the following certificates: $23.8 million class A-1, $26.3 million class A-2, $326 million class A-3 and interest-only class X at 'AAA', $39.5 million class B at 'AA', $36.2 million class C at 'A', $32.9 million class D at 'BBB', $39.5 million class F at 'BB', $6.6 million class G at 'BB-' and $6.6 million class H at 'B'. The $13.2 million class E and $6.6 million class K are not rated by Fitch. The rating downgrade and affirmations follow Fitch's annual review of the transaction, which closed in June 1997.

The class J was placed on Rating Watch Negative due to the exposure to Kmart Corp, in addition to the other loans of concern. There are three loans with exposure to Kmart comprising 3% of the pool. None of the three locations has been rejected. Fitch has also received information from ORIX Capital Markets, the master servicer, which indicates these Kmart locations have sales that are typical of an average Kmart store. Therefore Fitch's concern that these leases will be rejected is lessened due to the fact that they are not underperforming.

The downgrade of class J is primarily attributed to the losses expected on the four real estate owned (REO) assets and the interest shortfalls that have accumulated on this class. The class J is not expected to realize a principal loss from these four assets, however, the credit enhancement would not have been sufficient to maintain the rating. Also, the class has experienced full interest shortfalls due to appraisal reductions for more than eleven consecutive months indicating that a full recovery is unlikely.

The four REO assets total 1.27% of the pool. One property, Pueblo de Chamisa, has been sold and the loss due to that asset will be seen on the September distribution statement. A second property, Scenic Hills Shopping Center, is expected to be sold soon. The remaining two properties, Comfort Inn East Memphis and Whispering Pines Shopping Center, are currently being marketed for sale by the special servicer, CRIIMI MAE Services, L.P.. Fitch estimated total losses on these loans to be around $3.3 million.

Fitch also analyzed the remaining loans in the pool. The master servicer, reported 99.8% of the year-end (YE) 2001 financials, which resulted in a 1.53 times (x) debt service coverage ratio (DSCR). On a comparable basis, using 84% of the remaining loans, the DSCR has increased to a 1.55x as of YE 2001 from a 1.50x as of YE 2000 and 1.48x at issuance. The transaction continues to be well diversified across states and by loan size.

In addition to the REO assets, there has been an increase in specially serviced loans with three additional loans or 3.0% of the pool, recently transferred, indicating a further deterioration in the pool. Fitch anticipates the downgrade of class J reflects this deterioration adequately and will continue to monitor the transaction for any additional changes.