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Rating Action:

MOODY'S DOWNGRADES EIGHT CLASSES AND AFFIRMS EIGHT CLASSES OF MORGAN STANLEY CAPITAL I INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-CF1

12 Jun 2002
MOODY'S DOWNGRADES EIGHT CLASSES AND AFFIRMS EIGHT CLASSES OF MORGAN STANLEY CAPITAL I INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-CF1

Approximately $1.0 Billion of Structured Securities Affected

New York, June 12, 2002 -- Moody's Investors Service downgraded the ratings of eight Classes and affirmed the ratings of eight Classes of Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 1998 -CF1 as follows:

-- Class A-1, $157,211,866, Fixed, affirmed at Aaa

-- Class A-2, $365,026,000, Fixed, affirmed at Aaa

-- Class A-MF1, $97,613,939, Fixed, affirmed at Aaa

-- Class A-MF2, $75,805,192, Fixed, affirmed at Aaa

-- Class X, Notional, Floating, affirmed at Aaa

-- Class B, $55,364,000, Fixed, affirmed at Aa2

-- Class C, $60,901,000, Fixed, affirmed at A2

-- Class D, $60,901,000, Fixed, affirmed at Baa2

-- Class E, $19,378,000, Fixed, downgraded to Ba1 from Baa3

-- Class F, $22,146,000, Fixed, downgraded to B1 from Ba1

-- Class G, $33,218,000, Fixed, downgraded to Caa1 from Ba3

-- Class H, $11,073,000, Fixed, downgraded to Caa2 from B2

-- Class J, $11,073,000, Fixed, downgraded to Caa3 from B3

-- Class K, $19,378,000, Fixed, downgraded to Ca from Caa1

-- Class L, $11,073,000, Fixed, downgraded to Ca from Caa2

-- Class M, 5,536,000, Fixed, downgraded to C from Ca

Moody's noted that the mortgage pool supporting the certificates, which has been seasoned for almost four years, has deteriorated since securitization. Despite poorer property performance as discussed below, credit support for Classes A-1 through E has increased slightly since securitization and remains sufficient to absorb potential future losses. However, Classes E through M have been downgraded to reflect the erosion of cash flows from certain of the underlying assets.

As of the May 2002 distribution date, the transaction's aggregate principal balance has decreased by approximately 7.9% to $1.02 billion from $1.11 billion at closing due to amortization and loan prepayments. The Certificates are collateralized by 310 loans secured by 367 multifamily and commercial properties. The loans range in size from less than 0.1% of the pool to 4.0% of the pool with the top 10 loans representing 23.5% of the outstanding pool balance. Five loans with a total balance of $11.2 million have prepaid and eight loans were liquidated, resulting in an aggregate realized loss of $5.3 million.

Appraisal reductions totaling $35.6 million have been taken on 16 properties in the pool, including the Health Care Capital Portfolio. As a result, there have been interest shortfalls on Classes G through N. As of May 2002, accrued but unpaid interest to these Classes totaled $4.7 million.

Based on Moody's review of the loans in the pool, Moody's loan to value ratio ("LTV") is 93.4% compared to 88.6% at securitization. The poorer performance of a number of the properties, especially those that are healthcare related, has resulted in greater dispersion of LTV, which has impacted the lower rated Classes in the pool. Based on Moody's analysis, 19.2% of the pool has a LTV greater than 100%, compared to 9.9% at securitization.

There are 28 loans totaling $122.9 million (12.1% of the pool balance) in special servicing. Seven of these loans, totaling $51.7 million (5.1% of the pool balance), are current but the loans have specific issues that are being reviewed by the servicer. The two largest loans in this category are Elliott Bay Office Park ($22.4 million; 2.2%) and Cambridge Square Shopping Center ($16.7 million; 1.6%). Elliott Bay is in special servicing because the borrower encumbered the property with secondary liens. These liens have been removed and the loan is scheduled to be returned to the master servicer. Cambridge Square is in special servicing because the lease of its anchor tenant, Kmart, was rejected earlier this year as part of Kmart's bankruptcy proceedings.

The majority of the remaining 21 loans that are in special servicing are secured by healthcare related properties. The largest exposure is the Health Care Capital Portfolio ($36.7 million; 3.6% of the pool balance), which is secured by eight healthcare properties located in Louisiana (3), Tennessee (2), Florida (1), Texas (1) and New Mexico (1). The properties were formerly leased to and managed by Sunrise Healthcare Corporation and each lease was guaranteed by its parent, Sun Healthcare Group, Inc. ("Sun"). Five of the loans are REO while the remaining three are in the process of foreclosure. The special servicer expects to sell two of the worst performing properties relatively quickly (West Mesa Health Care in New Mexico and Panola Nursing Home in Texas), while stabilizing the other properties prior to marketing them for sale. A $23.8 million appraisal reduction was taken on this portfolio in February 2001. Based on recent appraisals, which indicate an aggregate value of $24.0 million, it is likely that there will be additional appraisal reductions taken on this portfolio. Moody's anticipates that the resolution of this portfolio will result in a significant loss.

In addition to the Health Care Capital Portfolio, there are six other REO loans in the portfolio. These include Friendship Manor Properties ($8.2 million; 0.8%); the Foster Portfolio ($4.3 million; 0.4%); Holiday Inn - Holidome ($4.7 million; 0.5%); 1525 and 1535 Central Avenue ($1.2 million; 0.1%) and 2906 North State Street Building ($0.7 million). The special servicer is projecting $16.0 million in losses on the disposition of these loans.

The pool collateral is a mix of retail (26.0%), multifamily (25.2%), office (14.6%), hotel (12.4%), healthcare (11.5%) and industrial (10.3%). The collateral properties are located in 37 states, with approximately 54.2% of the pool balance concentrated in five states. The highest state concentrations are California (22.2%), Florida (11.0%), Texas (7.6%), New York (7.3%) and New Jersey (6.1%). All but one of the loans in the pool is fixed rate.

New York
Tad Philipp
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Sandra Ruffin
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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