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Announcement:

Moody's Affirms 18 CMBS Classes of REALT 2006-2

Global Credit Research - 23 Mar 2011

Approximately $357 Million of Structured Securities Affected

New York, March 23, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 18 classes of Real Estate Asset Liquidity Trust Commercial Mortgage Pass-Through Certificates, Series 2006-2 as follows:

Cl. A-1, Affirmed at Aaa (sf); previously on Oct 13, 2006 Definitive Rating Assigned Aaa (sf)

Cl. A-2, Affirmed at Aaa (sf); previously on Oct 13, 2006 Definitive Rating Assigned Aaa (sf)

Cl. XP-1, Affirmed at Aaa (sf); previously on Oct 13, 2006 Definitive Rating Assigned Aaa (sf)

Cl. XC-1, Affirmed at Aaa (sf); previously on Oct 13, 2006 Definitive Rating Assigned Aaa (sf)

Cl. XP-2, Affirmed at Aaa (sf); previously on Oct 13, 2006 Definitive Rating Assigned Aaa (sf)

Cl. XC-2, Affirmed at Aaa (sf); previously on Oct 13, 2006 Definitive Rating Assigned Aaa (sf)

Cl. B, Affirmed at Aa2 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Aa2 (sf)

Cl. C, Affirmed at A2 (sf); previously on Oct 13, 2006 Definitive Rating Assigned A2 (sf)

Cl. D-1, Affirmed at Baa2 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Baa2 (sf)

Cl. D-2, Affirmed at Baa2 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Baa2 (sf)

Cl. E-1, Affirmed at Baa3 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Baa3 (sf)

Cl. E-2, Affirmed at Baa3 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Baa3 (sf)

Cl. F, Affirmed at Ba1 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Ba1 (sf)

Cl. G, Affirmed at Ba2 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Ba2 (sf)

Cl. H, Affirmed at Ba3 (sf); previously on Oct 13, 2006 Definitive Rating Assigned Ba3 (sf)

Cl. J, Affirmed at B1 (sf); previously on Oct 13, 2006 Definitive Rating Assigned B1 (sf)

Cl. K, Affirmed at B2 (sf); previously on Oct 13, 2006 Definitive Rating Assigned B2 (sf)

Cl. L, Affirmed at B3 (sf); previously on Oct 13, 2006 Definitive Rating Assigned B3 (sf)

RATINGS RATIONALE

The affirmations are due to key parameters, including Moody's loan to value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the Herfindahl Index (Herf), remaining within acceptable ranges. Based on our current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their current ratings.

Moody's rating action reflects a cumulative base expected loss of 1.6% of the current balance. At last review, Moody's cumulative base expected loss was 1.0%. Moody's stressed scenario loss is 5% of the current balance. Moody's provides a current list of base and stress scenario losses for conduit and fusion CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255. Depending on the timing of loan payoffs and the severity and timing of losses from specially serviced loans, the credit enhancement level for investment grade classes could decline below the current levels. If future performance materially declines, the expected level of credit enhancement and the priority in the cash flow waterfall may be insufficient for the current ratings of these classes.

Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses.

Primary sources of assumption uncertainty are the current sluggish macroeconomic environment and varying performance in the commercial real estate property markets. However, Moody's expects to see increasing or stabilizing property values, higher transaction volumes, a slowing in the pace of loan delinquencies and greater liquidity for commercial real estate in 2011. The hotel and multifamily sectors are continuing to show signs of recovery, while recovery in the office and retail sectors will be tied to recovery of the broader economy. The availability of debt capital continues to improve with terms returning toward market norms. Moody's central global macroeconomic scenario reflects an overall sluggish recovery through 2012, amidst ongoing individual, corporate and governmental deleveraging, persistent unemployment, and government budget considerations.

The principal methodologies used in this rating were "CMBS: Moody's Approach to Rating Fusion Transactions" published on April 2005, "CMBS: Moody's Approach to Rating Canadian CMBS", published on May 26, 2000, and "CMBS: Moody's Approach to Rating Large Loan/Single Borrower Transactions" published in July 2000.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.50 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 level are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade (which reflects the capitalization rate used by Moody's to estimate Moody's value). Conduit model results at the B2 level are driven by a paydown analysis based on the individual loan level Moody's LTV ratio. Moody's Herfindahl score (Herf), a measure of loan level diversity, is a primary determinant of pool level diversity and has a greater impact on senior certificates. Other concentrations and correlations may be considered in our analysis. Based on the model pooled credit enhancement levels at Aa2 and B2, the remaining conduit classes are either interpolated between these two data points or determined based on a multiple or ratio of either of these two data points. For fusion deals, the credit enhancement for loans with investment-grade credit estimates is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the credit estimate of the loan which corresponds to a range of credit enhancement levels. Actual fusion credit enhancement levels are selected based on loan level diversity, pool leverage and other concentrations and correlations within the pool. Negative pooling, or adding credit enhancement at the credit estimate level, is incorporated for loans with similar credit estimates in the same transaction.

Moody's uses a variation of Herf to measure diversity of loan size, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 17 compared to 19 at last review.

In cases where the Herf falls below 20, Moody's also employs the large loan/single borrower methodology. This methodology uses the excel-based Large Loan Model v 8.0 and then reconciles and weights the results from the two models in formulating a rating recommendation. The large loan model derives credit enhancement levels based on an aggregation of adjusted loan level proceeds derived from Moody's loan level LTV ratios. Major adjustments to determining proceeds include leverage, loan structure, property type, and sponsorship. These aggregated proceeds are then further adjusted for any pooling benefits associated with loan level diversity, other concentrations and correlations.

Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output.

The rating action is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. Moody's monitors transactions on a monthly basis through two sets of quantitative tools -- MOST® (Moody's Surveillance Trends) and CMM (Commercial Mortgage Metrics) on Trepp -- and on a periodic basis through a comprehensive review. Moody's prior full review is summarized in a press release dated March 4th, 2010. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

DEAL PERFORMANCE

As of the February 14, 2011 distribution date, the transaction's aggregate certificate balance has decreased by 13% to $360 million from $412 million at securitization. The Certificates are collateralized by 56 mortgage loans ranging in size from less than 1% to 9% of the pool, with the top ten loans representing 60% of the pool. Three loans, representing 2% of the pool, have defeased and are secured by Canadian Government securities. The pool contains five loans with investment grade credit estimates, representing 30% of the pool.

Thirteen loans, representing 13% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of our ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance.

One loan has been liquidated from the pool since securitization, resulting in an aggregate realized loss of $30,000 (1% loss severity). One loan, representing less then 1% of the pool, is currently in special servicing, the same at last review. Moody's has estimated an aggregate $170,000 loss (50% expected loss on average) for the specially serviced loan.

Moody's has assumed a high default probability for three poorly performing loans representing 4% of the pool and has estimated a $2 million aggregate loss (15% expected loss based on a 50% probability default) from these troubled loans.

Moody's was provided with full year 2009 operating results for 68% of the pool. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 78% compared to 83% at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 12% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.0%.

Excluding specially serviced and troubled loans, Moody's actual and stressed DSCRs are 1.41X and 1.32X, respectively, compared to 1.35X and 1.22X at last review. Moody's actual DSCR is based on Moody's net cash flow (NCF) and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stressed rate applied to the loan balance.

There are five loans with credit estimates that make up 30% of the pool. The largest loan with a credit estimate is the Crombie Pool A Loan ($33.4 million -- 9.3% of the pool), which is secured by five retail centers located throughout the provinces of Nova Scotia, Newfoundland and New Brunswick. The portfolio totals 579,000 square feet (SF) with County Fair Mall, 260,000 SF, as the largest property. As of December 2009, the portfolio was 84% leased, compared to 90% at last review and 95% at securitization. The portfolio's largest tenants are Sobey's (25% of the net rentable area (NRA); lease expirations vary); Zellers (18% of the NRA; lease expiration in March 2020) and Sears Canada (5% of the NRA; lease expiration in October 2029). The decline in net operating income from securitization has been partially offset by principal amortization. The loan is structured with a 25-year amortization schedule and has amortized 10% since securitization. The loan sponsor is Crombie Development which is a subsidiary of the Empire Company and owns Sobeys. Moody's current credit estimate and stressed DSCR are Baa3 and 1.34X, respectively, compared to Baa3 and 1.29X at last review.

The second loan with a credit estimate is the Trinity Crossing Orleans Loan ($29.7 million -- 8.3% of the pool), which is secured by a 191,000 SF shopping center located in the Ottawa suburb of Orleans, Ontario. The center is shadow-anchored by Loblaws Supermarket, which is not part of the collateral. As of February 2010, the property was 100% leased, essentially the same as last review and at securitization. The largest tenant's are Winners (24% of the NRA; lease expiration in May 2016); Value Village (15% of the NRA; lease expiration in March 2019) and Michael's (11% of the NRA; lease expiration in August 2016). The loan was previously on the watchlist due to the bankruptcy of Linen 'N Things which occupied 15% of the NRA at securitization. The space formerly occupied by Linen 'N Things has been leased to Value Village at the same rental rate previously paid by Linen 'N Things. Property's performance has been stable and the loan benefits from principal amortization. The loan has amortized 7% since securitization. The loan is full recourse to RioCan REIT, the sponsor. Moody's current credit estimate and stressed DSCR are Baa3 and 1.07X, respectively, compared to Baa3 and 0.99X at last review.

The third loan with a credit estimate is the Sandman Vancouver Hotel Loan ($22.5 million -- 6.3% of the pool), which is secured by a 302-room full service hotel located in downtown Vancouver, British Columbia. For the 12-month period ending December 2009, revenue per available room (RevPAR) and occupancy were $56 and 53% respectively, compared with $68 and 64% at last review, and $67 and 65% at securitization. Performance has declined due to lower occupancy levels for 2009. The loan is structured on a 20-year amortization schedule and has amortized 15% since securitization. The loan is full recourse to Northland Properties, the sponsor. Moody's current credit estimate and stressed DSCR are Baa3 and 1.50X, respectively, compared to Baa2 and 1.72X at last review.

The fourth loan with a credit estimate is the Merivale Market Shopping Center Loan ($13.9 million -- 3.9% of the pool), which is secured by a 79,000 SF grocery-anchored shopping center located in the Ottawa suburb of Nepean, Ontario. As of February 2010, the property was 100% leased, similar at last review, compared to 95% at securitization. The largest tenants are Food Basics (44% of the NRA; lease expiration in May 2026) and Shopper's Drug Mart (22% of the NRA; lease expiration in October 2016). Performance has been stable. The loan has amortized 7% since securitization. The loan is full recourse to RioCan REIT, the sponsor. Moody's current credit estimate and stressed DSCR are Baa3 and .99X, respectively, compared to Baa3 and 1.00X at last review.

The fifth loan with a credit estimate is the Abbey Plaza Loan ($8.3 million -- 2.3% of the pool), which is secured by a 95,000 SF grocery-anchored shopping center located in Oakville, Ontario. As of April 2010, the property was 100% leased, essentially the same as at last review and securitization. The largest tenant is Sobey's (47% of the NRA; lease expiration in September 2015). Performance has been stable. The loan is structured on a 20-year amortization schedule and has amortized 14% since securitization. The loan is full recourse to RioCan REIT, the sponsor. Moody's current credit estimate and stressed DSCR are Aa1 and 1.94X, respectively, compared to Aa1 and 1.78X at last review.

The three largest conduit loans represent 23% of the outstanding pool balance. The largest conduit loan is the Distillery District Loan ($30.6 million -- 8.5% of the pool), which is secured by a 328,434 SF mixed-use property that is an historic landmark located in downtown Toronto, Ontario. As of December 2009, the property was 96% leased compared to 98% at securitization. Performance has been stable. The largest tenant is Toronto Artscape (15% of the NRA; lease expiration in August 2022). The loan is structured with a 25-year amortization schedule and has amortized 10% since securitization. The loan is full recourse to Dundee REIT, the sponsor. Moody's current LTV and stressed DSCR are 67% and 1.45X, respectively, compared to 74% and 1.32X at last review.

The second largest conduit loan is the Dominion Square Loan ($27.4 million -- 7.6% of the pool), which represents a pari passu interest in a $54.8 million first mortgage loan. The loan is secured by a 12-story, 374,402 SF mixed-use building located on St. Catherine Street in downtown Montreal, Quebec. As March 2010, the property was 96% leased compared to 72% at securitization. The largest tenants are The Montreal Gazette (21% of the NRA; lease expiration in December 2018); Travaux Publique du Canada (20% of the NRA; lease expiration in March 2018) and Societe Immobiliere du Quebec (9% of the NRA; lease expiration in January 2011). Approximately 32% of the NRA is leased to local and provincial government agencies. While the property's occupancy levels have improved since securitization, rental revenue has decreased by 15% due to lower rental rates for new and renewing tenants. Moody's LTV and stressed DSCR are 109% and 0.89X, respectively, compared to 91% and 1.07X at last review.

The third largest conduit loan is the Crombie Pool B Loan ($25 million -- 6.9% of the pool), which is secured by a three anchored retail centres and one mixed-use property located in Novia Scotia and New Brunswick. The portfolio totals 800,000 square feet, with properties ranging in size from 71,000 SF to 386,000 SF with the largest property being Aberdeen Shopping Centre. As December 2009, the property was 82% leased compared to 90% at securitization. The sponsor is Crombie Developments, which is a subsidiary of the Empire Company, owner's of Sobey. Loan maturities range from April 2014 to April 2018. Performance has declined due to drop in revenues and increased operating expenses. Moody's LTV and stressed DSCR are 89% and 1.17X, respectively, compared to 80% and 1.28X at securitization.

New York
Brad Kamedulski
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms 18 CMBS Classes of REALT 2006-2
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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