Commercial Mortgage-Backed Securities

Disposition Fee:

"Workout fees" paid to a special servicer for making aloan current or liquidating a problem loan or foreclosed property. Can alsoinclude late fees, modification fees and loan administration charges. These fees are negotiated with each CMBS transaction.

Release Provision:

1) A provision to release certain collateral under amortgage for a previously agreed upon amount, or 2) A provision that if aborrower prepays the loan associated with one property in a pool of mortgages that are cross-collateralized and cross-defaulted, the borrower must additionally prepay a portion of all other loans in the pool. This provides protection against a borrower "cherry picking" properties out of across-collateralized pool

Haircut:

A CMBS expression that refers to the reduction of estimatedincome or cash flow expected from a property, on which the debt service coverage ratio is calculated. A haircut is a means to take a more agencies to calculate "stressed" DSCR on a property.

Fusion Deal:

A CMBS transaction that has conduit style loans, but eitherhas one loan that is more than 10% of the pool balance, or has at least 15%of the pool balance comprised of loans of $50 million or more.

Financial Asset Securitization Investment Trust (FASIT):

A REMIC like tax structure intended to permit the securitization of a wide variety ofasset classes, including mortgages. This new vehicle expands and improves upon the existing REMIC rules. With respect to CMBS, it permits the replacement of pre-paid loans after initial sale of the security, permits the inclusion of hedging investments and permits the pooling of mixed assettypes. The legislation was passed in 1996 as part of the "Small Business JobProtection Act of 1996" (HR 3448)

Special Purpose Entity (SPE):

A bankruptcy-remote entity established by the borrower(s) at the loan level and the issuer at the securities level whosesole asset is the property or properties being financed. The SPE protects the lender and, ultimately, the certificate holders of a security, from having the underlying property involved in bankruptcy proceedings against the borrower on the property; in the event of a bankruptcy or insolvency of theborrower or issuer an automatic stay would apply and delay payments to investors. Rating agencies generally request counsel to provide "true sale" opinions on the sale from the transferor to the issuer and "non-consolidation opinions" confirming that the entity is indeed bankruptcy remote. Also called a special purpose corporation (SPC) or special purpose vehicle(SPV).

Hurdle Rate:

A break-even debt service calculation that establishes the maximum interest rate a mortgaged property can handle at maturity if the property must be refinanced. It is calculated using current net operating income and an interest-only mortgage with a reasonably short maturity of less than five years. The hurdle rate is usually calculated to answer the question, Can all loans refinance at maturity if interest rates at a "disaster level?" Also called break even debt service analysis

Multifamily Property:

A building with five or more residential units or apartments. Multifamily properties are usually distinguished as high rise,low rise, or garden apartments.

Interpolated Treasury:

A calculation of an assumed Treasury rate based on the rates of two other Treasuries with similar maturities, if there is noTreasury available with that specific maturity. For instance, if a 4-year bond is priced to yield a rate benchmarked to Treasuries, the price will be set at approximately the midpoint between the 3-year and 5-year Treasury rates since there is no 4-year Treasury.

Interest Paid vs. Interest Impacted:

A clause in the CMBS structure that determines how and when losses are allocated—for instance, whether losses are allocated before or after principal is paid. This clause most greatly impacts the yield of the lowest class of certificate holders.

Subordinate Lien:

A collateralized secondary loan, or mortgage, in whichthe rights to the collateral are junior, or subordinate, to another debt orobligation.

Senior/Subordinate Structure:

A common structure used in CMBS involving a prioritization of cash flows. For example, in a simple two classsenior/subordinate structure (also known as an A/B structure), a) Class A will receive all cash flow up to the required scheduled interest and principal payment; b) The subordinate class, Class B, provides credit enhancement to Class A, and c) Class B will absorb 100% of losses experienced on the collateral until cumulative losses exceed Class B's amount; thereafter Class A will absorb all losses. Also known as a sequential pay structure.

Real Estate Investment Trust (REIT):

A corporation or partnership specially formed to invest in real estate (e.g., by acquiring or providing financing for real estate properties) and/or securities backed by real estate. REITs are required to pass through 90% of taxable income to their investors but are not taxed at the corporate level. The major types of REITs are equity, mortgage, and hybrid; equity REITs are the most common.

Cured:

A delinquent mortgage is said to be cured when all missedpayments have been made and loan payments are current.

Escrow Account:

A deposit jointly held by a borrower and a lender whichprovides reserved funds for key operating or capital expenses. Typicalescrow accounts are held for real estate taxes, insurance, tenant improvement, leasing commissions, necessary structural repairs or environmental remediation, or reserves for replacement. Also called anImpound Account.

Federal Housing Administration (FHA):

A division of the Department of Housing and Urban Development (HUD) that insures residential mortgages.

Americans with Disabilities Act (ADA), 1990:

A federal Act prohibiting public buildings from having architectural and communicational barriers for the disabled.

Conduit:

A financial intermediary that functions as a link, or conduit,between the lender(s) originating loans and the ultimate investor(s). The conduit makes loans or purchases loans from third party correspondents under standardized underwriting parameters, and once sufficient volume has accumulated, pools the loans for sale to investors in the CMBS market

Master Servicer:

A firm responsible for servicing the mortgage loans collateralizing a CMBS transaction on behalf of the bondholders. A master servicer's responsibilities vary according to the servicing agreement, and often include collecting mortgage payments and passing the funds to the trustee, advancing any late payments to the trustee, providing loan performance reports to bondholders, and passing all loans to the special servicer that are non-performing or become REO

Subordination:

A form of credit enhancement that determines the structureof a CMBS transaction, in terms of the distribution of the risk of credit lossvia the face amount allocated to each discrete rating class. Also see Senior/Subordinate Structure and Waterfall.

Overcollateralization:

A form of credit enhancement where the outstanding principal balance of the collateral backing a security is in excess of the outstanding certificate principal owed to the bondholders

Reserve Funds:

A form of credit enhancement whereby a portion of thebond proceeds are retained to cover losses on the mortgage pool. Also called reserve accounts.

Letter of Credit (LOC):

A form of credit enhancement which is an obligation by a third party to cover losses on a loan due to delinquencies and foreclosure on a commercial mortgage loan. The credit rating of the third party that issues the letter of credit is typically required to be, at a minimum, equal to the highest rating of the securities.

Fannie Mae (Federal National Mortgage Association — FNMA):

A government sponsored enterprise (GSE) or a "corporate instrumentality" ofthe government. Fannie Mae is a quasi-private corporation, with stock that trades. It does not receive a government subsidy or appropriation and is taxed like any other corporation. Fannie Mae purchases and pools conventional mortgages, i.e., those not insured by the Federal HousingAdministration (FHA), the Veteran's Administration (VA), or the Farmer's Home Administration (FmHA), but also buys mortgages from FHA, and then issues securities using the pool of mortgages as collateral. Fannie Mae was the first agency to pool mortgages backed by adjustable-rate mortgages and created the first pass-through collateralized by multifamily mortgagesthrough a swap program. Holders of Fannie Mae certificates are guaranteed full and timely payment of principal and interest

Freddie Mac (Federal Home Loan Mortgage Corporation - FHLMC:

A government sponsored enterprise (GSE) or a "corporate instrumentality" ofthe government. Freddie Mac is a quasi-private corporation, with stock held by Federal Home Loan Banks, under the regulatory control of the Department of Housing and Urban Development (HUD). Under the direction of the Federal Home Loan Bank Board (FHLB), Freddie Mac is charged to buy mortgages from S&Ls to enhance their role in and provideliquidity to the secondary market for single family mortgages (i.e., mortgages not backed by a government agency) and then issues securities using the pool of mortgages as collateral.

Ginnie Mae (Government National Mortgage Association -GNMA):

A governmentrelated agency that is part of the Department of Housing andUrban Development (HUD) and uses the "full faith and credit" of the U.S. government in borrowing. GNMA guarantees securities collateralized by mortgages initially issued by approved lenders (thrifts, commercial banks, and mortgage banks) that pooled the mortgages, using the mortgages for collateral for the security. In so doing, GNMA supports the Federal HousingAdministration (FHA) mortgage market as well as mortgages from the Veterans Administration (VA) and the Farmers Home Administration (FmHA). GNMA guarantees pass-throughs, but does not issue them, and will only guarantee a pool in which the underlying mortgages are insured or guaranteed by either the FHA, VA, or FmHA.

Bucket:

A grouping of loans by a single, shared attribute. For example, an issuer might speak of loans satisfying a term bucket (meaning that all the loans have the same or nearly the same average life).

Corporate Guaranty:

A guaranty made by the issuer (issuer guaranty) or a third party to cover losses due to delinquencies and foreclosures up to theguaranteed amount. The rating of the guarantor is commonly required to be, at a minimum, equal to the highest rating of the securities. A form of credit enhancement

Rent Step-Up:

A lease agreement in which the rent increases at givenintervals for a fixed amount of time or for the life of the lease.

Ground Lease:

A lease on undeveloped land that covers the land but notimprovements or buildings on that land. In other words, the land andbuildings are separate entities and are separately owned. Also called a leasehold.

Double-Net Lease:

A lease that typically requires the tenant to pay forproperty taxes and insurance in addition to the rent. Also called a net-netlease or an NN lease.

Triple-Net Lease:

A lease whereby the tenant pays rent, real estate taxes,expenses as well as maintenance fees. This implies no running costs for theowner.

Pooling and Servicing Agreement (PSA):

A legal contract defining the responsibilities and the obligations of the master and special servicers inmanaging a CMBS transaction, including required advances.

SEC Rule 144A:

A legislation originally contained in the Securities Act of1934 that restricts the sale of bonds not registered with the Securities andExchange Commission (SEC). Unregistered certificates can only be sold to "qualified investors," principally institutional investors, who can demonstrate that they meet certain standards of net worth and/or income and are therefore deemed to be sophisticated investors

Available Funds Cap:

A limit on the amount of interest payable to certificate holders, to the extent of interest accrued on a group or pool of mortgage loans.

Earn-Out Loans:

A loan agreement which provides that the original principal balance may be resized by an additional advance as the operating performance of the property is able to service additional debt. Earn-out loans are made on properties of which performance is expected to improve in the near term due to such factors as renovations, re-tenanting or repositioning. Earn-out loans specify certain resizing criteria such asminimum debt service coverage ratios (DSCRs) and, in some cases, minimum loan to value ratios (LTVs)

Credit Tenant Lease

A loan in which all payments are guaranteed by the credit of the tenant, which is typically a nationally or regionally rated company with an investment-grade credit rating. The credit tenant assumes nearly all of the obligations of ownership, therefore making the lease payments net of any offsets or deductions to the lessor or owner

Equity Kicker:

A loan or investment provision that allows the lender/investor to receive an equity-based return in addition to normal rates upon some event. Typically this involves a lender/investor receiving a disproportionate percentage share of the proceeds of refinancing or sale.

Delinquency:

A loan payment that is at least 30 days past due. Usuallywhen the loan is more than 90 days delinquent, the lender has the right tobegin foreclosure proceedings.

Non-Performing Loan:

A loan that fails to make principal and/or interest payments as required by the loan agreement. This includes loans that aremaking payments at a rate less than the full principal and interest payments required by the mortgage.

Sub-Performing Loan:

A loan that is making partial or full interest and principal payments, but with a debt service coverage ratio (DSCR) that would be unacceptable if underwritten at this time. A loan may be classified as sub-performing even if monthly payments are current if the loan-to-value ratio (LTV) or other primary value indicator suggests that the loan is unlikely to be able to pay off in full at maturity.

Shadow Anchor Retail:

A major retail tenant that provides significant drawing power to a retail center but which itself may not be part of theparticular shopping center or the specific collateral—for example, a shopping center consisting of several in-line stores with a Wal-Mart on an outparcel that is not collateral for the loan but serves as an anchor. Although the WalMart is not part of the shopping center, the store nonetheless serves as a shadow anchor to the other property and in-line stores

Liquidity:

A measure of the ease and frequency with which assets such as CMBS are actively traded in the secondary market. Liquidity is related tovolume; the greater the outstanding and ongoing issuance of a certain asset such as CMBS, the greater the liquidity typically is.

Loss Severity:

A measure of the rate of loss on a liquidated loan, defined asthe ratio of realized loss on the mortgage loan divided by the outstandingprincipal on the mortgage loan.

Option Adjusted Spreads (OAS):

A measure of the return, or risk premium, over comparable Treasuries used as a risk-free base that incorporates interest rate volatility and possible cashflow variations, but not credit quality. The method is chiefly applicable to the pricing of prepayment risk in residential MBS, wherein borrowers have a legal option to fully prepay their loans when interest rates decline, creating reinvestment risk forthe investor. OAS is less applicable to CMBS, where prepayments are highly limited by strict prepayment penalties

Convexity:

A measurement of the rate of change of duration of a security.Positive convexity implies that prices rise at an increasing rate as yields fall,and prices decline at a decreasing rate as yields rise.

Constant Prepayment Yield (CPY):

A modified CPR that assumes prepayments to be zero until all yield maintenance and penalty provisions are expired. IO tranches in CMBS are priced using a 100 CPY assumption.

Closed-End Mortgage:

A mortgage bond issued with an indenture that prohibits repayment before maturity and the re-pledging of the same collateral without the permission of the bondholders. Also called a closed mortgage.

Credit Facility Loan:

A mortgage loan entered into for the purpose of providing the borrower flexibility with respect to adding, releasing or substituting collateral. These loans generally have lower LTV and higher DSCR requirements

Adjustable Rate Mortgage (ARM):

A mortgage loan on which the interest rate adjusts periodically (e.g., monthly, every six months, annually). The rate is stated as a spread over a published index rate such as the 10-Year Treasury or the London Inter-Bank Offer Rate (LIBOR).

Corrected Mortgage Loan:

A mortgage loan that had previously incurred a default or related event is current or cured in the sense that all paymentsare current and defaults are cured.

Reverse Earn-Out Loans:

A mortgage loan that, like an earn-out loan, is made on a property or properties that do not yet possess stabilized cashflows. Unlike an earn-out loan, a reverse earn-out is sized at origination on the basis of specific criteria (generally DSCR) not yet achieved, or achieved but not yet shown to be consistent. If specified criteria (generally a DSCR of 1.2x-1.4x) are not met by a specified date, the loan is resized down. Thedifference between the outstanding balance of the loan and the resized balance must be paid down by the borrower from other sources, which may not result in a further encumbrance of the property, or with an outsidepreferred equity investment

Balloon Mortgage:

A mortgage requiring monthly payments of principal and interest in which the loan amortization is greater than the term of the mortgage. Principal and interest payments are made until maturity of the mortgage, at which time full payment of the remaining principal, the balloon payment, is due. For example, in a ten-year balloon mortgage, with scheduled payments to amortize the loan in 30 years, part of the principal will be paid down through year ten, at which point the remaining balance will be paid as a lump-sum.

Qualified Mortgage:

A mortgage that can appropriately be included in a CMBS. Includes any obligation principally secured by an interest in realproperty and which is either: a) transferred to the REMIC on the startup day, or b) purchased by the REMIC within the three-month period beginning as of the startup day, pursuant to a fixed price contract in effect on the startup day. Additional obligations qualifying as secured by real property for thepurposes of being termed a qualified mortgage include: a) obligations secured by stock held by tenants/stockholders in a cooperative housing corporation; b) debt securities backed by mortgages on timeshare ownership interests in a condominium development; and c) REMIC regular interests (not residual interests) transferred to the REMIC on the startup day in exchange for any interest in the REMIC.

Bullet Mortgage:

A mortgage that requires monthly payments of interest only until the final mortgage payment, or bullet payment, when full payment of principal is due.

Real Estate Owned (REO):

A mortgaged property that has been acquired by a trust fund or lender through foreclosure or deed in lieu of foreclosure

Independent Director:

A non-affiliated individual on the board of directors of a borrowing entity. The vote of the independent director is required for certain actions by the entity, e.g., declaration of bankruptcy, thus insulating the entity from deleterious control by affiliated principals. This is often a key component of special purpose entity (SPE) and bankruptcy remote structures.

Controlling Party:

A party designated in a CMBS transaction that has theright to approve and direct certain actions of the special servicer withrespect to specially serviced loans.

Special Servicer:

A party in addition to the master servicer that is responsible for managing loans that go into default and conducting the "work-out" or foreclosure process, e.g., liquidating of loans and advancing the proceeds to the trustee. There are various types of special servicers: a) Those that retain first-loss pieces; b) Those that invest in B-pieces in return for special servicing rights; and c) Those that are appointed solely because of their specialized asset management d) expertise.

Real Estate Mortgage Investment Conduit (REMIC):

A pass-through entity that can hold loans secured by real property without the regulatory,accounting and economic obstacles inherent in other forms of mortgage backed securities. A REMIC is a bankruptcy-remote legal entity which distributes the cash flow to bondholders of various classes (or tranches) of securities without being taxed at the entity level. REMICs have facilitatedthe sale of interests in mortgage loans in the secondary market. Embedded in the Tax Reform Act, 1986.

Constant Default Rate (CDR):

A percentage of the outstanding collateral principal that is expected to default in one year. The default is assumed tobe a liquidation

Constant Prepayment Rate (CPR):

A percentage of the outstanding collateral principal that is expected to prepay in one year. A CPR represents an assumed constant rate of prepayment each month (expressed as an annual rate), rather than a variable rate of prepayment.

Extension/Extension Option:

A period of time past the contractual termination of the mortgage given to a borrower to repay a mortgage loanthrough refinancing or sale of the property, or an automatic provision permitting extension of the original term of the mortgage. In order to prevent placing a property in foreclosure, thereby incurring additional costs, servicers may grant an extension to a borrower who has a balloon paymentdue.

Lock-Out Period:

A period of time towards the beginning of the life of aloan, during which a borrower cannot prepay the mortgage loan. Lock-out isa form of call protection since it prevents prepayment.

Workout Fee:

A portion of the special servicer's compensation payable foreach corrected mortgage loan, as specified by the pooling and servicingagreement. This fee is payable out of and is calculated by applying a workout fee rate to each collection of interest and principal (including scheduled payments, prepayments, balloon payments and payments at maturity) for a mortgage loan as long as it remains a corrected mortgageloan. This fee ceases to be payable if the loan becomes a specially serviced mortgage loan again or becomes an REO property

Yield Maintenance:

A prepayment premium that makes investors whole for any loss in yield resulting from a prepayment; i.e., the penalty compensates the lender for scheduled interest payments above a risk-free rate that would have been made if no prepayment had occurred. The fee is designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers. Also see Defeasance.

Rate Step-Ups:

A previously agreed upon increase in the mortgage rate,either contractual and expected at intervals or triggered by certain events,i.e., if the borrower (particularly with a balloon mortgage) fails to show progress towards refinancing (such as an appraisal, engineering report, or environmental study) or is unable to obtain a signed commitment or sales contract on the underlying property.

Defeasance:

A process by which a borrower may obtain release of the lien on its property as security for the loan by substituting qualifying government securities as replacement collateral, which have payment terms sufficient to make scheduled payments on the loan. Defeasance is used as an alternative to prepayment of the loan, the key difference being that in defeasance the loan remains outstanding. For comparison purposes, the cost of the defeasance securities as replacement collateral over the outstanding balance of the loan could be compared to the yield maintenance or prepayment premium where the prepayment option is permitted

Casualty:

A property damaged or destroyed by an unexpected or unusualevent.

Recreational Property:

A property designed for a recreational specialized use. Includes sports arenas, country clubs and marinas.

Institutional Property:

A property used by special institutions, such as a university, hospital, or a government agency. Since such properties are designed for a specific purpose, they may be difficult to adapt for other uses, even though they may resemble other property types

Cross-Default:

A provision in a mortgage or deed of trust by which abreach of terms or default under the loan documents of one loan will automatically trigger a default under other mortgage(s). A set of properties with the same owner might be both cross-defaulted and crosscollateralized. A form of credit enhancement.

Cross-Collateralization:

A provision in a mortgage or deed of trust by which the collateral for one mortgage also serves as collateral for othermortgage(s). Thus, should the collateral on the one mortgage fall short in repayment of the debt, the collateral of the other mortgage(s) could be claimed as well (but only in the event of such a shortfall). CMBS backed by crosscollateralized properties have reduced delinquency risk; cross-collateralizationtherefore adds value to the structure. A set of properties with the same owner might be both cross-defaulted and cross-collateralized. A form of credit enhancement.

Lock-Box Provision:

A provision whereby the trustee is given control overthe gross revenues of the underlying properties in a CMBS transaction. Property owners only have a claim to cash flows net of expenses, which include debt service, taxes, insurance and other operating expenses

Open Prepayment:

A provision which permits repayment of all or a portion of a loan during a specified period prior to scheduled maturity without a fee or penalty.

Concessions:

A relief or reduction in total payments for a period of time, used as an incentive to attract or retain tenants in lease agreements. Concessions can include reduced or free rent for a portion of the lease period, above-market tenant improvement and work letters. The use of concessions in leasing is a response to current market conditions, but theexistence of concessions in a building's leases makes it more difficult tocalculate net cash flow and, therefore, debt service coverage ratios.

Amortization:

A repayment schedule of loan principal over a period of time until the debt is paid off; the periodic payment consists of a growing portion of principal and a declining portion of interest over time.

Phase I Environmental Site Assessment (ESA):

A report prepared by an environmental consultant which reviews the property and surrounding landto ascertain the presence or potential presence of environmental hazards. The analysis examines any ground water contamination, PCBs, abandoned disposal of paints and other chemicals, asbestos or a wide range of other potential contaminants. This Phase I ESA provides a review and makes a recommendation as to whether further investigation is warranted (a Phase IIESA). The latter report would confirm or deny the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigating effects that should be undertaken.

Remittance Report:

A report sent by the servicer of a CMBS transaction toeach certificate holder on a periodic distribution date which providesdetailed information about the current distribution; copies of the remittance reports are also sent to the underwriter and trustee. There are no fixed standards for the information to be included in remittance reports and, in fact, there is a wide variety of formats. Typically, remittance reports aredistributed monthly.

Deferred Maintenance Account:

A reserve account established by a borrower to cover future property maintenance costs. Also called a replacement reserve account.

Stress Test:

A series of tests performed by the rating agency which projectthe performance of the mortgage pool under varying scenarios or stress related assumptions. The rating agency determines the likelihood of timely repayment using historical loan experience for the collateral type and its own statistical database concerning probability of default and severity of loss. The stress tests to which the pooled loans are submitted includeanalysis of the mortgage documents, real property collateral, tax structure, geographical distribution, loan servicing and administration issues. For example, a stress test might assess the impact of a change in interest rates on debt-service coverage ratios (DSCRs).

Sub-Servicer:

A servicer contractually engaged by the master or specialservicers to perform some of the real estate services required under poolingand servicing agreements, such as property inspections, foreclosure services or individual loan administration. The master or special servicer is legally responsible for the activities of the sub-servicers. Sub-servicers are more likely to be engaged for specialized property types or if there is a small number of loans, a subset of the total portfolio, in a given area.

Pari Passu Loan:

A single loan backed by a certain property or portfolio ofproperties, which is divided among several smaller components. Each component is securitized in a separate CMBS transaction, and is paid scheduled interest and principal payments on a prorated basis depending on their size relative to the larger loan. Each pari passu component receives equal legal treatment and, in the event of a default, receives a proratedportion of the net liquidation proceeds

Blanket Mortgage:

A single mortgage collateralized by more than one property with the same owner

Notional Amount:

A stated dollar amount on which a calculation is based,such as the payment on a swap contract or an IO strip.

Probable Maximum Loss (PML):

A statistical analysis that determines the severity of earthquake risk for a property in an earthquake-prone area bydefining the damage ratio due to the worst possible earthquake scenario. PML is also used to quantify risk from other natural disasters such as hurricanes, floods and tornadoes. Generally, properties with PMLs over a certain threshold (perhaps 20%) are required to carry additional insurancecoverage

Mezzanine Debt:

A subordinate loan made after the first-lien mortgage thatis secured by an ownership interest in the borrower, instead of by themortgaged property itself. The borrower pledges his equity stake in the property as collateral for the loan. The term "mezzanine" implies temporary indebtedness, but a long term second mortgage is also technicallymezzanine debt.

Low Income Housing Tax Credit (LIHTC)

A tax credit given to owners for the construction or rehabilitation of low income housing. To qualify forthe credit, the property must have: a) at least 20% of the units occupied by individuals with incomes of 50% or less of the area median income, or 18 CRE Finance Council Glossary of Terms Commercial Mortgage-Backed Securities (CMBS) b) at least 40% of the units occupied by individuals with incomes of 60% or less of the area median income. Also called Section 42 properties after the section of the Internal RevenueCode which authorizes the credit

Contributions Tax:

A tax imposed on a REMIC triggered by certain contributions of properties made to a REMIC after the day on which theREMIC issues all of its interests. Each pooling and servicing agreement will include provisions designed to prevent the acceptance of any contributions that would be subject to such a tax.

"B" Pieces:

A term applied to the classes or tranches of CMBS rated BB+ and lower. Also called "B.I.G.," or below-investment grade.

Other Real Estate Owned (OREO):

A term used primarily by banks to identify real estate on the books that was taken back through foreclosure ofa mortgage loan. The term "Other" REO is used by banks to distinguish foreclosed real estate from bank real estate owned, which is typically corporate real estate assets. Nonetheless, the industry commonly uses the term REO for foreclosed real estate

Waterfall:

A term used to describe the cash flow pay-out priority of aCMBS. The cash flow from the pool of mortgages typically pays principal plus interest to the highest-rated tranche, while paying only interest on the lower-rated tranches (the coupon payment having been stipulated at the time of issue). After all of the certificates from the highest-rated tranche have been retired or paid down, the cash flow then is dedicated to payingprincipal as well as interest to the next-highest rated tranche. Since lower rated tranches receive principal payments only after higher-rated tranches are paid down, they typically have longer average lives.

Extension Advisor:

A third party who has the right, or obligation, to approve loan extensions and modifications recommended by the master servicer or special servicer. Not all CMBS have third party extension advisors

American Council of Life Insurers (ACLI):

A trade association for life insurance companies based in Washington, DC that collects and disseminates data on commercial real estate portfolios held by those companies, including data on mortgage delinquencies. The data represents approximately 85% of all mortgages held by life insurance companies.

Interest Only Strip (IO):

A tranche in CMBS that comprises the aggregate payment stream of all interest from the underlying mortgages(s) due on a certain security that exceeds the coupon paid on the security. The excess interest is sold as a separate tranche at a small fraction of the price of the security or of classes with a similar credit rating. IO tranches are highly sensitive to prepayment and extension of loans, since the duration on thesetranches may drastically change with these events, and therefore haverelatively high price volatility

Prepayment:

A whole or partial repayment of principal by the borrowergreater than or earlier than a scheduled payment on a mortgage loan. Most occurrences are due to borrower refinancing at lower interest rates or due to capital appreciation of the property value.

Available Funds:

All funds available or collected from borrowers, including regular payments of principal and interest, prepayments or servicer advances.

Preliminary Prospectus:

Also known as a "red herring", or private placement memorandum, it includes all or most of the information that willbe included in the final prospectus but is subject to amendment.

Collection Account:

An account established by the master servicer in thename of the trustee for the benefit of the certificate holders. Usually allpayments and collections received on the mortgages and from advances made by the servicers are deposited into this account.

Certificate:

An actual certificate that defines the beneficial ownership in atrust fund

Resolution Trust Corporation (RTC):

An agency created by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 designed to assume the assets of failed financial institutions, principally savings and loan institutions (S&Ls or thrifts) and dispose of those assets. The RTC can be credited with profoundly expanding the CMBS market by assuming a large volume of these securities, often with substantial credit enhancement to make them palatable to investors. The RTC charter expiredin 1995, and all remaining assets and duties were transferred to the FDIC

Rating Agency:

An agency that examines the securities and their underlying collateral and assigns credit ratings to the securities based on itsbenchmarks. Ratings range from triple-A, the highest rating, to triple-C, the lowest rating possible, and are a major influence on CMBS structure and pricing. The four rating agencies of CMBS are Dominion Bond Rating Service, Fitch Ratings, Moody's Investors Service and Standard & Poor's.

Lease Assignment:

An arrangement whereby the owner of a commercial property owner and the lender enter into an agreement that assigns leasepayments directly to the lender. This is opposed to the standard arrangement where lease payments go directly to the owner, who then forwards mortgage payments to the lender. In CMBS transactions, lease payments under a lease assignment would go directly to the servicer.

National Association of Insurance Commissioners (NAIC):

An association of regulators of insurance companies headquartered in KansasCity whose recommendations, while not binding on members, they are generally followed. As a result, NAIC rulings can be important to the CMBS market. For example, the NAIC determines the reserves that life companies are required to retain against either mortgages or bonds. Therewas recently a controversy over whether a CMBS collateralized by a singleasset was really a mortgage (requiring higher reserve levels) or a bond (with lower capital reserve requirements)

Non-Consolidation Opinion:

An attorney's statement which affirms that the assets of an entity would not be substantially consolidated with those ofits affiliates by a bankruptcy court per Section 105 of the bankruptcy code. This is often a key component of special purpose entity (SPE) and/or bankruptcy remote structures.

Servicing Transfer Event:

An event that triggers the transfer of the management of a mortgage loan from the master servicer to the specialservicer. A servicing transfer event occurs when a borrower has defaulted or, in the reasonable judgment of the master servicer, is likely to default and be unable to cure within a reasonable time. In this event, the master servicer can transfer the day-to-day handling of the account to the special serviceruntil such time as the special servicer determines that the default has beencured and that the loan is now a corrected mortgage loan

Commercial Property:

An income-producing property, e.g., multifamily housing, retail, office, warehouse, industrial or hotel.

Duration:

An indication of the percentage change in the price of a securityrelative to a change in interest rates. It provides a measure of the pricevolatility of the security: the greater the duration, the greater the price volatility relative to a change in interest rates. Positive duration means that the price of a security moves in the opposite direction of a change in interest rates; conversely, negative duration means that the price moves in the samedirection as a change in interest rates. Duration is the weighted average term-to-maturity of the security's cash flows when the weights are thepresent values of each cash flow as a percentage of the present value of allcash flows of the security.

Financial Accounting Standards Board (FASB):

An industry group that establishes the prevailing standards for the accounting treatment of assets and liabilities.

PAC IO:

An interest-only tranche whose cashflows are "stripped" from theexcess interest payments on mezzanine bonds in the CMBS structure.

Levered IO:

An interest-only tranche whose cashflows are "stripped" fromthe excess interest on senior and subordinate classes of the CMBS structure.It is rated AAA because of its high priority in receiving cashflows, but has greater exposure to collateral defaults than the PAC IO

Qualified Institutional Buyer (QIB):

An investor defined within the meaning of Rule 144A under the Securities Act who must have a minimum net worth and/or income and be knowledgeable of the risks of the investment. Most CMBS can only be sold to QIBs.

Subordinate Ground Lease:

An lease on a parcel of land in which the rights attributable to the lease are junior, or secondary, to another more senior obligation.

Interest Rate Cap:

An option purchased typically by the borrower that limits the interest rate to a specified maximum on either a periodic or lifetime basis. This option protects the borrower from rising interest rates

Cash Flow:

Cash flow is examined at the level of both the security and theindividual property. At the security level, the certificate holders of CMBSreceive all principal and interest cash flow from a pool of mortgages in a sequential, defined manner. Early prepayments or extended maturities change those cash flows and therefore can have a material effect on how and when some certificate holders receive their sequential payments, henceaffect the total yield on the bonds. At the asset level, the cash flow of each individual property in the CMBS transaction is scrutinized to calculate the ability of the property to generate sufficient revenue to service the loan.

CMSA:

Commercial Mortgage Securitization Association. An international trade association promoting the ongoing strength, liquidity and viability of commercial real estate capital market finance worldwide. CMSA plays a vital role in setting industry standards and educating professionals. With more than 470 member companies worldwide, and with a presence in Canada, Europe, Japan and the United States, our diverse membership base represents the full range of the industry's market participants, including senior executives at the largest moneycenter banks and investment banks, rating agencies, insurance companies, investors, lenders and service providers.

Net Effective Rent:

Defined as the gross revenue from rental payments lessoperating expenses, rental concessions, tenant improvements, etc. In weakor declining markets, net effective rent may be negative

Capitalization Rate (Cap Rate):

Defined as the net operating income (I) for the year divided by the appraised value of the property (V) [I/V = R]. Itis used as a measure and/or benchmark for a property's value based on current performance. Cap rates also serve as an indicator of investor expectations

Tranche:

Each discretely-rated class of CMBS securities, which istypically paid a coupon stipulated at the time of issue and principal based ona predetermined payment sequence. Typically, lower-rated tranches have higher coupons and longer lives, since they receive no principal payments until the higher-rated tranches have been retired or paid off.

Franchise Fee:

Fee paid by the hotel owner to a larger hotel company thatallows the owner to "fly the flag" of that particular company (Hilton, Holiday Inn, etc.) and to benefit from the advertising and reservation network of the company. Fee ranges from 4% to 7% of gross revenue.

Appraisal Reduction:

Following certain events based on loan delinquency, an appraisal will be performed to determine if the property value justifies any further advances by the master servicer. If the value of the property is below the loan balance plus authorized advances, the master servicer may stop or reduce principal and interest payments on that loan to the Trustee. The Trustee will then reduce principal and interest payments to the certificate holders in order of their priority, beginning with the first-loss security.

Comfort Letter:

Generally defined as a letter between parties to a legalagreement stating that certain actions not clearly covered in the agreementwill or will not be taken. Such declarations of intent usually deal with matters that are of importance only to the specific parties and do not concern other signers of the agreement. Specifically to CMBS, a comfortletter is an independent auditor's letter to assure that information in the registration statement and prospectus is correctly prepared and that no material changes have occurred since its preparation.

Servicing Advances:

Generally defined as customary, reasonable and necessary out-of-pocket costs and expenses incurred by the master servicer or special servicer in connection with the servicing of a mortgage loan after an event of default, delinquency or other unanticipated event or in connection with the administration of an REO property. These advances are paid by the master servicer or sometimes the special servicer and aregenerally reimbursable from future payments and other collections. In all cases, the required servicing advances are detailed in the pooling and servicing agreement

Net Cash Flow (NCF):

Gross operational revenues earned by a property less operating expenses as well as tenant improvements, leasing commissions and reserves, but before mortgage payments. May be expressed as: NCF = NOI - (tenant improvements + leasing commissions + capital repairs)

Net Operating Income (NOI):

Gross operational revenues earned by a property less operating expenses but before mortgage payments, tenant improvements, replacement reserves and leasing commissions. NOI is typically used as the basis for calculating debt service coverage ratios.

Non-recoverable Advance:

If an advance made towards a non-performing loan by a master servicer, special servicer or trustee is, in their judgment,deemed unrecoverable from related proceeds or another specifically identified source, this advance is not required to be made.

Mark-to-Market Regulations:

In December, 1996 the IRS released final regulations relating to the requirement that a securities dealer mark-to-marketthose securities that are being held for sale to customers. This mark-to-market requirement applies to all securities owned by a dealer, except to the extent that the dealer has specifically identified a security as held for investment. The mark-to-market regulations provide that, for purposes ofthis requirement, a REMIC Residual Certificate is not treated as a securityand thus generally may not be marked to market.

Right to Cure:

In the event that a contractual obligation between twoparties (e.g., a ground lease) is breached or defaulted, the right to cure permits a specified and interested third party (e.g., a lender) to assume the responsibilities of one of the parties (e.g., the borrower) to perform under the agreement (e.g., pay rent) on behalf of the defaulting party to preserve their interests (e.g., their lien position). Often, holders of subordinate debthave the right to cure any default on the primary debt.

Accrued Interest:

Interest due on a loan that has not yet been paid. Before any principal reductions are allowed on the loan, the accrued interest is added to the principal balance and commonly must be paid.

Excess Interest/Excess Spread:

Interest received from repayments that is greater than the interest on the certificates. It is defined as the difference between the interest paid on the mortgage loans (net of servicing fees) and the interest accrued on thecertificates.

I-Curve:

Interpolated Treasury curve. Pricing a 9.5-year CMBS bond as aspread to the I-Curve involves interpolating yields for the remaining maturities of the on-the-run 5-year and 10-year Treasury notes. If both notes were issued three months ago, the interpolation would involve 4.75 years as the starting point and 9.75 years as the ending point.

J-Curve:

Interpolated nominal Treasury curve. Pricing a 9.5-year CMBSbond as a spread to the J-Curve involves interpolating yields for the originalmaturities of the on-the-run 5-year and 10-year Treasury notes. The J-Curve ignores any seasoning that may have taken place in either issue.

Bond Ratings: S&P

Investment Grade: Aaa, Aa, A, Baa Junk: Ba, B, Caa, Ca, C **** C is in default

Investment Grade (IG):

Investments that are rated triple-A, double-A, single-A and triple-B are investment grade, therefore appropriate for regulated institutional investors. The lowest investment grade rating is BBB-.

Due Diligence:

Involves the inspection of properties and the evaluation offinancial records of a property involved in a CMBS transaction, and formsthe foundation of the securitization. Due diligence protects investors from unethical and unprofessional practices, and is said to be the cornerstone of securities law.

Prepayment Premium or Prepayment Penalty:

Language in loan documents requiring a borrower to pay a penalty for any prepayments made on a mortgage loan. Most prepayment premiums are structured either as yield maintenance or penalty points.

Call Protection:

Language on specific loans that protect the lender againstearly prepayment. The language specifies the specific terms of the callprotection: either lockout, penalty points, yield maintenance, defeasance, or a combination thereof over the loan term.

Expense Stops:

Lease clauses that stipulate the maximum amount of alandlord's or owner's obligation for expenses; expenses greater than the stipulated amount (i.e., the "stop") are paid by tenants, pro-rated by the amount of space occupied by each tenant.

Percentage Lease:

Lease commonly used for large retail stores where rentpayments include a base rent plus a percentage of the gross sales ("overage") if sales are greater than a stipulated amount. Percentages typically range from one to six percent of gross sales.

Gross Full Service Lease:

Lease structure under which the landlord pays all building expenses. Also called a full service lease or a gross rent lease.

Employee Retirement Income Security Act of 1974 (ERISA):

Legislation which stipulates the standards of risk that are appropriate andacceptable for private pension plan investments. A fiduciary of an employee benefit plan, i.e., a pensionfund subject to ERISA, may invest in CMBS only if the certificates meetspecified investment guidelines.

Self-Amortizing Loans:

Loans for which the full amount of the principal will be completely paid off at the loan's termination pursuant to the loan'spayment schedule. Also called fully amortizing loans.

Capital Markets:

Markets in which capital funds, both debt and equity, aretraded. Included are private placement sources of debt and equity as well asorganized markets and exchanges.

NCREIF Index:

Numerous indices compiled by the National Council ofReal Estate Investment Fiduciaries (NCREIF) on commercial real estateperformance based on data provided principally by pension funds' equity real estate. Often used as a benchmark for real estate investment performance

Government Sponsored Enterprise (GSE):

One of several agencies formed to provide a secondary market for residential real estate loans, including Fannie Mae (Federal National Mortgage Association—FNMA); Freddie Mac (Federal Home Loan Mortgage Corporation— FHLMC); and Ginnie Mae (Government National Mortgage Association—GNMA).

Servicer:

Party responsible for the administration of mortgage loans in aCMBS transaction, acting for the benefit of the certificate-holders. Theservicer's responsibilities include reporting to the trustee, collecting payments from borrowers, advancing funds for delinquent loans, negotiating workouts or restructures (as permitted by the pooling and servicing agreement) and taking defaulted properties through theforeclosure process

Advances:

Payments made by a servicer on behalf of a loan borrower, either for delinquent loans (by the special servicer) or performing loans (by the master servicer), so that CMBS certificate payments can be made according to schedule. Advances may be required not only for principal and interest but also for property protection, taxes, insurance and foreclosure costs. As reimbursement, the servicer has a proxy claim to subsequent collections and foreclosure proceeds up to an amount that was stipulated as "recoverable."

Mark-to-Market:

Periodic adjustments of estimated value of an asset, or offuture cash flows from an asset, to reflect current market levels. In a fallingor weak market this is likely to create a downward adjustment of current value based on lower expected future income streams, such as if rental rates on existing leases are greater than rental rates being charged for new leases in the market (i.e., if there are several above-market leases in a building thatare terminating). The opposite is true in a strong or rising market. This termmay apply to the value of CMBS or any security subject to price movements

Co-Tenancy Provisions:

Permit a retail tenant to cancel its lease if anothermajor tenant vacates the property.

Involuntary Payment:

Prepayment on a mortgage loan due to a default.

Go Dark Provisions:

Prevents a retail tenant from vacating a space beforethe term of the lease expires even while continuing to pay rent, since vacantspace is detrimental to the performance of neighboring retail stores

Office Property:

Property designed to be used principally as a place ofbusiness, ranging from major multi-tenant buildings to single tenant buildings built to a tenant's specific needs.

Retail Property:

Property types range from super-regional shopping centers with a gross leasable area greater than one million sq. ft. to smallstores with single tenants.

Industrial Property:

Property used for light or heavy manufacturing, research and development, or warehouse space, including office/warehousespace and flex space.

Third Party Pool Insurance:

Protects investors from any losses on the mortgage loans. The bond insurer, paid an annual fee by the issuer, willabsorb the losses. The CMBS is usually never rated higher than the credit rating of the third-party issuer. A form of credit enhancement.

Credit Enhancement:

Provisions in addition to the mortgage collateral tosupport a desired credit rating on mortgage backed securities. Provisions made by issuers to compensate for default risk in CMBS include subordination, reserve funds, cross-collateralization, cross-default provisions, and advance payment agreements.

Recapture Provisions:

Provisions that permit the owner to cancel a lease and regain control of the space after the tenant vacates the space.

Residual:

Refers to any cash flow remaining after the liquidation (full payoff)of all classes of securities in a CMBS. Multiple-asset, multiple-classCMBS frequently have a residual.

Asking Rent:

Rental rate offered by the landlord to a prospective tenant. The rent paid can be less than the asking rent after tenants negotiate for an actual rental rate and concessions.

Tax Reform Act (TRA), 1986:

Reversed many of the tax reforms of 1981. Properties that were profitable in the tax environment of 1981-1986 werenot economically viable after the TRA. Many markets had become oversupplied due to tax advantaged construction of properties which the underlying economic and demographic demand could not support. As aresult, TRA triggered a sharp drop in new construction, particularly ofapartments

Private Label Securities:

Securities backed by mortgages that are issued by the private sector, including conduits, banks, thrifts and other financialinstitutions. These securities are also known as non-agency securities and are not backed by agencies such as Fannie Mae, Freddie Mac, or Ginnie Mae

Commercial Mortgage Backed Security (CMBS):

Securities collateralized by a pool of mortgages on commercial real estate in which all principal and interest from the mortgages flow to certificate holders in a defined sequence or manner.

Agency Securities:

Securities issued by governmental or quasi-governmental agencies such as Fannie Mae (Federal National Mortgage Association), Freddie Mac (Federal Home Loan Mortgage Corporation), or Ginnie Mae (Government National Mortgage Association). Agency securities are not rated by rating agencies but carry an implied triple-A rating.

Senior Pieces:

Security classes, or tranches, that are rated as investmentgrade, therefore appropriate for regulated institutional investors (i.e., triple-A, double-A, single-A, and triple-B).

ASERs (Appraisal Subordinate Entitlement Reductions):

Structural CMBS feature that estimates expected losses on defaulted loans and prevents payment of current interest on the estimated losses. Designed to prevent conflicts of interest between the subordinate and senior classes.

Economic Recovery Tax Act (ERTA), 1981:

Tax reform which created tax incentives for construction of commercial real estate. The practicaleffect was to fuel excess building, particularly of multifamily properties, which were only economically viable in that taxadvantaged environment.

Rollover:

Term used to describe the expiration of a lease. Large rolloverconcentrations in a given time period are undesirable, since this leads to thelandlord's exposure to a potentially weaker market and to the possibility of a debt service coverage ratio below one.

Priority of Distributions:

The CMBS provision that defines how, when and to whom the available funds will be distributed.

CMBX:

The CMBX is a group of indices - each index consisting of 25 equally weighted similar rated CMBS tranches. Using the CMBX, one can either gain synthetic risk exposure to a portfolio of CMBS by "selling protection" or take a short position by "buying protection." The notional balance, amortization and writedowns for a CMBX Index closely mirror the balance, principal payments and writedowns of the corresponding portfolio of cash CMBS. The indices are rolled into a new "on the run" series every six months (April and October). The first vintage of indices began trading in March 2006. Markit is the Administration and Calculation Agent.

Investor Reporting Package (IRP):

The CMSA Investor Reporting Package is the established reporting standards for the CMBS industry. TheIRP is a standardized set of bond, loan and property level information provided for all CMBS securitizations

Federal Deposit Insurance Corporation (FDIC):

The FDIC oversees the insurance fund for both commercial banks (the BIF) and saving institutions(the SAIF) and assures the viability and liquidity of retail financial institutions. The FDIC is also the principal regulator for some banks, while the Comptroller of the Currency is the regulator for other banks

Hyper-Amortization:

The accelerated paydown of a class in a CMBS or of an individual property loan achieved by allocating all scheduled principaland interest to that class.

Interest Shortfall:

The aggregate amount of interest payments from borrowers that is less than the accrued interest on the certificates.

Deferred Interest:

The amount by which the interest a borrower is requiredto pay on a mortgage loan falls short of the amount of interest due on theoutstanding principal balance. This amount is usually added to the outstanding principal balance of the mortgage loan.

Risk Based Capital (RBC):

The amount of capital (or net worth) an investor must identify and allocate to absorb a potential loss on an investment or investment class. This requirement was established by institutional regulatory bodies in the last few years because of losses at various types of financial institutions. The amount of risk-based capital thatis required varies among asset classes depending on perceived risk (e.g., isdifferent for mortgages or rated bonds) and is typically expressed as a percent of the amount at risk

Realized Loss:

The amount unrecovered from the sale of a foreclosedmortgage loan or REO property. It is equal to the outstanding principal balance of the loan, plus all unpaid scheduled interest, plus all fees applied to the sale of the property, minus proceeds received from liquidation

Administration Rate:

The annual rate of the servicing fee and trustee fee, expressed as a percentage of the outstanding principal balance of each loan.

Weighted Average Coupon (WAC):

The average coupon or interest payment on a set of mortgages, weighted by the size of each mortgage in the pool

Weighted Average Maturity (WAM):

The average time before a set of mortgages will be retired, weighted by the size of each mortgage in the pool.

Weighted Average Life (WAL):

The average time until all scheduled principal payments are expected to have been made, weighted by the size of each mortgage in the pool.

Yield to Maturity

The calculated rate of return an investor will receive asof a certain date if a long-term, interest-bearing investment, such as a bond,is held to its maturity date. The calculation takes into account purchase price, face value, time to maturity, coupon yield and the time between interest payments.

Reversionary Cap Rate:

The capitalization rate applied to the expected ultimate sale price/value of a building after a multiple-year holding period.Typically about 50 basis points higher than a going-in cap rate.

Going-In Cap Rate:

The capitalization rate applied to the first year's income.

Modeling (Cash flow modeling):

The chronological collation of cash flows from pools of loans, including balloon maturities, that are securitizedin a CMBS transaction, and their allocation among the various tranches in the transaction

Leasehold Improvements:

The cost of improvements for a leased property, often paid by the tenant.

Securitization:

The creation of a new financial instrument representing anundivided interest in a segregated pool of assets such as commercial mortgages. The ownership of the assets is usually transferred to a legal trust or special purpose, bankruptcy-remote corporation to protect the interests of the security holders.

Determination Date:

The date of the month (usually the 15th or the next business day) that is used as a cut-off date for calculation of payments dueon the securities

Distribution Date:

The date of the month (usually the 20th or the next business day) the payments on the securities will be paid to the certificateholders

Cut-Off Date:

The date on which the portfolio securing the CMBS isfirmly identified, and the numbers from that pool are used for the final calculations before issuing the securities.

Delivery Date:

The date on which the securities will be delivered to thepurchasers, or to the Trustee if the Trustee is the custodian for the Depository Trust Company (DTC). The DTC handles the security certificates for purchasers by acting as custodian of the certificates and issuing a form showing the "book entry" for safekeeping to the certificate holder

Prepayment Interest Shortfall:

The difference between the interest accrued on the corresponding certificates and the interest accrued on theprepaid loan. In the event of a prepayment of principal, interest received on the loan is less than the interest due on the certificates. To the extent that any such shortfall is allocated to a certain class of offered certificates, the yield on that class will be adversely affected.

Loss to Lease:

The difference between the market rental rate for a propertyand the actual rent being paid for the property, indicating changing marketconditions. For example, if a property were leased for a one year term at $10,000 per month, and the current market rate were $10,500 per month on similar properties, the loss to lease would be $500 per month.

Yield Spread:

The difference in yield between a security and a benchmark,typically U.S. Treasuries of the same maturity

Allocation of Realized Losses:

The distribution of realized losses among the various classes of certificate holders in a transaction. Losses are recorded at the deal level after losses have occurred on particular loans.

Prospectus:

The document filed with the Securities and Exchange Commission (SEC) that stipulates all the material information about a security. The final prospectus is commonly called "the black" to differentiate it from the preliminary prospectus, or "the red". In the case of a CMBS, the prospectus lists various details, including (but not limited to) theproperties collateralizing the security, the terms and conditions of payment to security holders, the payment sequence among classes, the contingencyplan in the event that mortgages are not paid as expected, and the treatmentof defaults and prepayments. All relevant information about a security must be spelled out in the prospectus.

Survivability:

The enforceability of reps and warranties made by the lenderprior to the securitization process, after the creation of the securities.

Depositor:

The entity that accumulates the mortgages and transfers them tothe Trust simultaneously with the issuance of the securities to the certificateholders. The depositor can be the seller of a portfolio of mortgages or an entity established just for the purpose of holding the mortgages until the pool accumulation is completed.

Reversion/Reversionary Value:

The expected value of a building during a theoretical sale after a several-year holding period; used to calculate thereversionary cap rate

Liquidation Fee:

The fee paid to a special servicer when the special servicer obtains a full or discounted payoff on any specially serviced loan. The fee is calculated by applying the liquidation fee rate as stipulated in the pooling and servicing agreement to the related payment or proceeds.

Leasing Commissions:

The fees paid by the landlord to brokers for bringing tenants to a property.

Startup Day:

The first day on which interests in the REMIC are issued.

E-Curve:

The front end of the swap curve is constructed with Eurodollarfutures contracts, which are future contracts on 3-month LIBOR. Unlike theJ-spread, which is a spread over the bond's average life point on the Treasury curve, the E-spread is a single constant spread that is added to each relevant point on the Eurodollar futures curve.

Securities:

The generic term applied to Certificates of Ownership of thefunds or assets of a trust fund. These undivided interests are issued by thetrustee in amounts of $100,000 until less than $100,000 remains, then in amounts of $1,000. The certificates are usually issued in lettered classes starting with Class A, the highest-rated class. Each class is risk-rated by one or more of the major rating agencies. If the higher risk first-loss class isincluded in the security and sold rather than being held by the seller, the class is rated as "NR" (not rated). The "not rated" risk-rating is used for securities not qualifying for the minimum risk rate.

Aggregation Risk:

The interest rate, pricing, and credit risk assumed by the issuer of CMBS while mortgages are being warehoused during the process of pooling them for ultimate securitization.

Lead Manager:

The investment bank charged with the principal responsibility for managing the issuance of a new security. This firm also typically has the largest role in the underwriting of the security, and their name appears in the most prominent position on the tombstone advertisement announcing the issuance of the security

Right of Substitution:

The legal right to replace collateral, parties or othercomponents in a contractual obligation. For example, a mortgage may allow the release of certain property from the collateral as long as other acceptable collateral replaces it.

Seasoning:

The length of time elapsed since the origination of a mortgageloan—i.e., the longer a loan has been outstanding and performing to its terms, the more "seasoned" it is. The presumption is that more seasoned loans have a lower probability of default. A loan that has been outstanding for perhaps three years but shows a poor pay history (e.g., several late pays, particularly beyond 30 days), is not considered seasoned because of itsperformance.

First Loss Piece:

The lowest class or tranche of a CMBS transaction whichwillabsorb credit losses from the mortgage pool first before any otherclasses are affected

Primary Market:

The market in which newly issued loans or securities aresold. When loans or securities are sold by the initial lender to anotherinvestor, they constitute the secondary market.

Certificate Holder:

The owner of record that actually owns a certificate(security).

Accrual Rate:

The periodic rate at which interest is due on a mortgage. This may differ from the pay rate.

Pay Rate:

The periodic rate at which interest is paid on a mortgage. Thismay differ from the accrual rate

Allocated Loan Amount:

The portion of the principal amount of a blanket mortgage associated with each individual property in the loan.

Standby Fee:

The portion of the special servicer's compensation thataccrues with each mortgage loan, including performing as well as speciallyserviced mortgage loans and those which have been converted to REO. This fee accrues at the standby fee rate and is payable by the master servicer from its master servicing fee.

Master Servicing Fee:

The principal compensation paid to the master servicer, payable monthly on a loan-by-loan basis from interest on theloans. The base fee is computed on the principal amount for the same period and accrued at the applicable fee rate for a specific deal. In addition, the fee may include all assumption and modification fees, late payment charges and similar fees paid by borrowers on non-specially serviced loans.

Private Placement:

The private sale of securities to institutional investorswho meet specific criteria of net worth and/or income and who are deemedto be sophisticated investors, e.g., insurance companies. Private placement securities are generally exempt from registration requirements of the Securities Act of 1933. Investors are permitted to scrutinize the financial data of private placements that would not otherwise be publicly releaseddue to confidentiality restrictions. As a result, private placements are particularly suitable for the lower-rated tranches of CMBS becauseinvestors have access to more information on which to base a decision

Structuring:

The process of combining mortgages and the creation ofcorresponding CMBS classes in such a way as to achieve the highest price for a transaction, based on capital market factors prevailing at that time. Also see Waterfall.

Foreclosure:

The process triggered by a delinquency where payments aremore than 90 days past due, whereby a lender assumes title to a property onwhich the mortgagee has defaulted. A servicer may take over a property from a borrower on behalf of a lender.

Discount Rate:

The rate applied to each year's cash flow from a property todetermine the net present value (NPV) of a series of cash flows. Based onthe periodic weighted average cost of capital or the required return for a real estate investment.

Expense Ratio

The ratio between operating expenses and operating revenues.

Unit Mix:

The ratio of 1BR to 2BR apartments in multifamily properties.The general trend has been toward a higher percentage of 2BR apartments since they provide more flexibility to families and lifestyle renters.

Debt Service Coverage Ratio (DSCR):

The ratio of a property's net operating income or net operating cash flow to the debt service payments on the loan backed by the property. DSCR is a measure of a mortgaged property's ability to meet monthly debt service payments; higher ratios are more desirable. A DSCR less than 1.0 means that there is insufficient cash flow by the property to cover debt payments.

Loan-to-Value Ratio (LTV):

The ratio of the principal amount on a mortgage at origination to the current appraised value of the property. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is not fixed and varies by lending institution, the borrower's credit history, the property type, geographic location, size and other variables.

Reps and Warranties:

The representations (or "reps") and warranties made by a mortgage lender about the quality of the loans. Many reps andwarranties survive the securitization process, and are still enforceable once the mortgage has been included in a security. With CMBS the reps and warranties language focuses on the issue of fraud and misrepresentation.

Extension Risk:

The risk of a borrower's potential inability to refinanceballoon mortgages in a timely manner, thereby requiring that the life of thesecurity be extended beyond the expected life.

Environmental Risk:

The risk of liability and losses to the lender on a mortgage loan due to the presence of hazardous materials, such as asbestos,RCB, radon, or leaking underground storage tanks (LUSTS) on a property. Properties in a CMBS are required to have at least a Phase I environmental clearance. Even when properties show no current environmental problems, however, rating agencies sometimes in effect "price in" the possibility thatproperties are at risk of not meeting future environmental standards.

Balloon Risk:

The risk that a borrower is unable to make a balloon or lump-sum payment at maturity.

Prepayment Risk:

The risk that a borrower will repay the remaining principal or an amount greater than the scheduled payment on a mortgage prior to maturity, thus shortening the life of the loan. In order to reduce prepayment risk, commercial mortgages often have call protection provisions.

Refinance Risk:

The risk that borrowers are unable to refinance mortgagesat maturity, thereby extending the life of a security collateralized by thosemortgages

Basis Risk:

The risk that the cash flow from the underlying mortgage loans does not match the required payouts to bondholders because the offered certificates are tied to different indices than are the mortgages (e.g., mortgages are at fixed rates but bonds are at floating rates). This raises the possibility of the certificates accruing interest at higher interest rates than the underlying mortgage loans.

Original Issue Discount (OID):

The sale of a bond at a discount to the par price. The increase in value of the bond as it approaches maturity is part ofthe total return calculation, but various investors are required to treat this part of their total return differently due to tax considerations

Liquidation:

The sale of a defaulted mortgage loan, or of the REO propertythat previously secured the loan

Debt Service:

The scheduled payments due on a loan, including principal,interest, and other fees required by the loan agreement.

London Interbank Offered Rate (LIBOR):

The short-term (1-year or less) rate at which banks will lend to each other in London. Commonly usedas a benchmark for adjustable rate financing. LIBOR terms are usually for one, two, three or six months or one year.

Cash-on-Cash Return:

The short-term return on an investment in a property defined as the cash flow received divided by the cash equity invested in a property; expressed as a percentage. Also called an Equity Yield Rate (EYR).

All-In Cost:

The term applied to the total costs of a securitization. Usually quoted in basis points to reflect what would have been added to the yield if the expenses had not been applied to the creation of a security.

Terrorism Risk Insurance Program Reauthorization Act for 2007

The terrorist attacks on September 11th, 2001 resulted in the horrible loss of life and insured damages of approximately $35 billion. The attacks also created tremendous uncertainty in the insurance market, which was further exacerbated by the threat of future terrorist attacks and the inability to price for terrorism risks. Consequently, reinsurers stopped writing coverage and primary insurers withdrew, or tried to withdraw, from the market, which led to dramatic increases in the price of commercial property-casualty insurance. Commercial policyholders soon faced exclusions for terrorism in standard insurance policies, and coverage becameextremely expensive and altogether unavailable in certain areas. In response, Congress enacted the "Terrorism Risk Insurance Act of 2002 (TRIA)", which has served as the structure for the program that exists today.TRIA created a public-private partnership between the federal government, the property-casualty insurance industry and commercial policyholders to share future insured losses from international acts of terrorism. The program was extended in 2005 and again in December 2007.

Average Life:

The time until all scheduled and unscheduled principal payments are expected to have been made. The average life of a CMBS is typically compared to the comparable Treasury (often an interpolated Treasury) to determine the expected yield on the CMBS.

Secondary Market:

The trading of securities that have been previously issued.

Trustee:

The trustee for a CMBS holds the mortgage collateral documents,issues the certificates of beneficial ownership (the securities), passes allfunds from the master servicer to the bondholders, and distributes statements on distributions and the status of the collateral. Acts as a supervisor to the master servicer and special servicer. Ensures that the servicers act in accordance with the pooling and servicing agreement. Ifthere isa violation of the agreement, the trustee has the right to assume the authority of or appoint a new servicer. The trustee represents the trust that holds the legal title to the collateral for the benefit of all class holders of the security. Trustees must carry out their duties according to the indentures established within the trust indenture.

Tenant Improvements (TI):

These include the costs of new carpeting, painting, walls, cleanings, etc. The cost is borne generally by the landlord;tenants are often provided with a maximum TI allowance (expressed in dollars per square foot) that the owner will contribute toward improvements. In markets with strong demand, TI may be passed on to the tenant in terms of higher rent. In times of weaker demand, TI allowancesmay be more generous, thereby adding uncertainty to net cashflow from a building

Securities Act of 1933:

This act established registration requirements and antifraud provisions. It requires new issues to be registered with the SECand meet prospectus requirements. New issues can be exempt from these requirements if certain conditions are met.

Average Daily Rate (ADR):

Total daily revenue divided by the total number of occupied rooms on that day. This measure is typically used for hotels but may also be used for healthcare properties.

Revenue Per Available Room (RevPAR):

Total hotel revenue over a specified time period divided by the number of available rooms in the hotelin that period

Mezzanine Classes:

Tranches in a securitization rated in the middle rangeof a multi-class security, i.e., more secure than the first-loss tranche but lesssecure than senior classes. According to CMBS market convention, mezzanine tranches typically refer to those rated between AA and BBB-.

Value:

Unless otherwise specified, the value of a mortgaged property is itsfair market value determined in an appraisal obtained by the originatorwhen the loan is first made.

Dark Space:

Vacated retail space for which the tenant is still paying rentdespite having vacated the space

Default:

When a loan has violated any terms and conditions of the mortgage, it is considered defaulted.

Basis Risk Shortfall:

When the aggregate amount of interest on the certificates is greater than on the collateral, the difference is known as the basis risk shortfall

Negative Amortization:

When the scheduled interest payment on a loan is less than the interest accrued according to a certain interest rate, thisshortfall is added to the outstanding principal balance. Therefore, as the loan progresses, the principal balance due on the loan grows with time. This is known as negative amortization and often occurs in Adjustable Rate Mortgages (ARMs) when the borrower's capacity to service the loan fallsshort of the interest due.

Notice of Default (NOD)

a notice posted by the trustee or mortgage lender in public records to initiate foreclosure proceedings involving a public saleof the property securing the mortgage. NOD also includes the right to be informed of a borrower's default on a major contract such as a ground lease.

What is a CMBS?

bonds whose payments derive from a loan or a pool of loans on commercial real estate

What is CRE?

business properties and multi-family real estate such as apartment buildings.

Bankruptcy Remote Entity (BRE):

legal entity devised to insulate identifiable assets (e.g., mortgages) and/or individual borrowers from the effects of bankruptcy in a larger pool of assets. For example, a borrower might segregate selected mortgages in a BRE that are destined for a CMBS; therefore, if other mortgages to the same borrower were to default, the cash flow from the segregated assets would then not be interrupted or seized by a bankruptcy court, hence assuring a continuous cash flow to bondholders of a CMBS.

What is securitization?

the process by which a loan, or more commonly a group, or pool, of loans is packaged into a deal structure, and CMBS are created and issued. These bonds are "tranched," or split into different risk levels, thereby allowing investors to buy varying levels of risk.