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Rating Action:

Moody's Downgrades 11 CMBS Classes and Affirms One Class of JPMCC 2006-FL2

Global Credit Research - 22 Sep 2010

Approximately $512.9 Million of Structured Securities Affected

New York, September 22, 2010 -- Moody's Investors Service (Moody's) downgraded 11 classes and affirmed one class of J.P. Morgan Chase Commercial Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2006-FL2.

Cl. A-1, Affirmed at Aaa (sf); previously on Dec 7, 2006 Definitive Rating Assigned Aaa (sf)

Cl. A-2, Downgraded to Aa2 (sf); previously on Sep 16, 2010 Aaa (sf) Placed Under Review for Possible Downgrade

Cl. B, Downgraded to A1 (sf); previously on Sep 16, 2010 Aa1 (sf) Placed Under Review for Possible Downgrade

Cl. C, Downgraded to A2 (sf); previously on Sep 16, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade

Cl. D, Downgraded to A3 (sf); previously on Sep 16, 2010 Aa3 (sf) Placed Under Review for Possible Downgrade

Cl. E, Downgraded to Baa1 (sf); previously on Sep 16, 2010 A1 (sf) Placed Under Review for Possible Downgrade

Cl. F, Downgraded to Baa3 (sf); previously on Sep 16, 2010 A3 (sf) Placed Under Review for Possible Downgrade

Cl. G, Downgraded to Ba1 (sf); previously on Sep 16, 2010 Baa1 (sf) Placed Under Review for Possible Downgrade

Cl. H, Downgraded to Ba2 (sf); previously on Sep 16, 2010 Baa2 (sf) Placed Under Review for Possible Downgrade

Cl. J, Downgraded to B1 (sf); previously on Sep 16, 2010 Ba1 (sf) Placed Under Review for Possible Downgrade

Cl. K, Downgraded to Ca (sf); previously on Sep 16, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade

Cl. L, Downgraded to C (sf); previously on Sep 16, 2010 B3 (sf) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

The downgrades were due to the deterioration in the performance of the assets in the trust, the significant concentration of loans secured by hotel properties (42% of pooled trust balance), and refinancing risk associated with loans approaching maturity in an adverse environment. Approximately 100% of loans mature within the next 18 months. Moody's also affirmed one pooled class. The affirmation is due to key parameters, including Moody's loan to value (LTV) ratio and Moody's stressed debt service coverage ratio (DSCR), remaining within acceptable ranges. Moody's placed these classes on review for possible downgrade on September 16, 2010. This action concludes Moody's review.

Further downward pressure on the ratings could occur if the collateral for the Doubletree Hotel loan and the Roosevelt hotel loan fail to demonstrate Revenue per Available Room (RevPAR) and cash flow improvement in line with Moody's expectation. Hotels located in New York City have begun to show improved performance since the beginning of 2010. The New York hotel market has seen a 15.3% improvement in RevPAR year to date through July 2010, as compared to the same period in 2009, based on the Smith Travel Research 'US Hotel Industry Performance for the month of July 2010' report. Moody's anticipated RevPAR to increase in line with the New York City hotel market. In addition, office cash flow performance below Moody's expectation on the RREEF Silicon Office Portfolio loan and Marina Village loan will also have an impact on the ratings. In the case of the RREEF loan, a material lease rollover occurs in 2011, while occupancy levels have already declined due to lease rollover on the Marina Village property.

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 stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in the industrial, office, and retail sectors. Hotel performance has begun to rebound, albeit off a very weak base. Multifamily has also begun to rebound reflecting an improved supply / demand relationship. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook-shaped" for 2010 and 2011; we expect overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels.

The principal methodology used in rating J.P. Morgan Chase Commercial Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2006-FL2 was Moody's "CMBS: Moody's Approach to Rating Large Loan/Single Borrower Transactions" rating methodology published in July 2000. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

In addition to methodologies and research available on moodys.com, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

Moody's review incorporated the use of the excel-based CMBS Large Loan Model v 8.0 which is used for both large loan and single borrower transactions. 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. The model also incorporates a supplementary tool to allow for the testing of the credit support at various rating levels. The scenario or "blow-up" analysis tests the credit support for a rating assuming that all loans in the pool default with an average loss severity that is commensurate with the rating level being tested.

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 19, 2009. The previous review was part of Moody's first quarter 2009 ratings sweep and incorporated assumptions for capitalization rates and stressed cash flows that were outlined in "Rating Methodology Update: US CMBS Conduit and Fusion Review Prompted by Declining Property Values and Rising Delinquencies" dated February 5, 2009. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

Moody's Investors Service received and took into account one or more third party due diligence reports on the underlying assets or financial instruments in this transaction and the due diligence reports had a neutral impact on the rating.

As of the September 16, 2010 distribution date, the transaction's certificate balance decreased by approximately 55% to $680.9 million from $1.5 billion at securitization due to the payoff of eight loans and principal pay downs associated with five loans. The Certificates are collateralized by eight floating-rate loans ranging in size from 3% to 21% of the pooled trust mortgage balance. The largest three loans account for 55% of the pooled balance. The pool composition includes office properties (58% of the pooled balance) and hotel properties (42%).

The deal has a modified pro-rata structure. Interest on the pooled trust certificates are distributed first to Classes A-1, X-1 and X-2, pro rata, and then to Classes A-2, B, C, D, E, F, G, H, J, K, and L, sequentially. Prior to a monetary or material non-monetary event of default, scheduled and unscheduled principal payments are allocated to the Pooled Classes and junior participation interests on a pro rata basis. Initially, 80% of the principal received is paid to the Class A-1 and A-2 certificates sequentially and 20% will be allocated pro rata to the other certificates. Principal distributions are made sequentially from the most senior to the most junior class after the outstanding principal balance of the Pooled Trust Assets (exclusive of Trust Assets related to Specially Service Mortgage Loans) is less than 20% of the initial principal balance of the Trust Assets. All losses and shortfalls are allocated first to the relevant junior interest, and then to Classes L, K, J, H, G, F, E, D, C, B, and A-2 in that order, and then to Class A-1.

The pool has experienced losses of $161,948 since securitization. There are currently two loans in special servicing which are the Menlo Oaks Corporate Center loan ($59.4 million; 9% of the pooled balance) and the Hilton San Diego Mission Valley Hotel loan ($20.3 million; 3%). The Menlo Oaks Corporate Center loan was transferred to special servicing on October 2009 due to maturity default. The collateral is an office park located in the Menlo Park submarket of San Francisco, California. As of May 2010, occupancy at the center has dropped to 56% from 73% at securitization. The borrower and lender are negotiating a forbearance. The loan collateral was appraised on January 4, 2010 for $71 million.

The Hilton San Diego Mission Valley Hotel loan was transferred to special servicing in February 2010 due to maturity default. The collateral is a 349-room full service hotel located in San Diego, California. Revenue per available room (RevPAR) for 2009 was $77.56 which was down 25% from the 2008 RevPAR of $122 which is slightly higher than the 17.5% decline in San Diego RevPAR for 2009 according to Smith Travel Research. The loan is pending return to the master servicer following a modification which included a two year forbearance, a $3 million principal prepayment, and a cash flow trap after debt service to be applied to the loan.

Moody's weighed average pooled loan to value (LTV) ratio is 90.2%, compared to 83.8% at last review on March 19, 2009 and 66.1% at securitization. Moody's pooled stressed debt service coverage (DSCR) is 1.30X, compared to 1.32X at last review and 1.38X at securitization.

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. Large loan transactions have a Herf of less than 20. The pool has a Herf of 7 compared to 8 at Moody's prior review.

The three largest loans in the pool represent 55% of the pooled balance. The RREEF Silicon Valley Office Portfolio Loan ($139.8 million -- 21%), a 27% portion of a pari passu split loan structure, is the largest in the pool. The loan is secured by a 5.3 million square foot portfolio of office/R&D properties located in Santa Clara, Sunnyvale, Mountain View, Milpitas and San Jose, California. Occupancy as of December 2008 was 83%, compared to 71% at securitization. At securitization, the largest tenant was Maxtor, leasing approximately 15% of the NRA on multiple leases that expire in 2011. Moody's current loan to value ratio ("LTV") and stressed DSCR for the loan are 91.4% and 1.15X. Moody's underlying rating for the pooled balance is Ba3, the compared to Ba2 at last full review.

The second largest loan in the pool is the Doubletree Metropolitan Loan ($125.0 million -- 18%) which is secured by a 755-room full service hotel located in Midtown Manhattan in New York City. RevPAR for 2009 was $183, down 28% from the 2008 RevPAR of $255. Hotels located in New York City have begun to show improved performance based on the Smith Travel Research 'US Hotel Industry Performance for the month of July 2010' report. Moody's anticipated RevPAR to increase in line with the New York City hotel market. Moody's current loan to value ratio ("LTV") and stressed DSCR for the loan are 69% and 1.69X. Moody's underlying rating for the pooled balance is Baa1, the same as at last full review.

The Marina Village loan ($112.5 million, 17%) is the third largest loan in the pool and currently on the master servicer's watchlist. The loan is secured by a 1.2 million square foot suburban office property in the Alameda submarket of Oakland, California. Occupancy and net cash flow have fallen significantly since securitization and the loan matures in February of 2011. As of July 2010, occupancy for the property was 74% compared to 80% at securitization. At the time of securitization, the property had recently lost two tenants but had historically performed better. A return to prior cash flow levels had been anticipated at securitization, however this has not materialized. Moody's current loan to value ratio ("LTV") is over 100% and Moody's stressed DSCR for the loan is 0.73X. Moody's underlying rating for the pooled balance is C, compared to Ba3 at last full review.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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

New York
Andrea M. Daniels
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
USA

Moody's Downgrades 11 CMBS Classes and Affirms One Class of JPMCC 2006-FL2
No Related Data.
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