DBRS Downgrades Class K through Class O of COMM 2004-LNB3 and Changes the Trend on Class J to Negative

DBRS has today downgraded the following ratings of COMM 2004-LNB3: Class K to BB (low) from BB, Class L to B (high) from BB (low), Class M to B (low) from B (high), Class N to CCC from B and Class O to CCC from B (low). The trends are Negative. DBRS has also changed the trend on the BB (high) Class J rating to Negative from Stable. The remaining classes in the transaction have been confirmed with Stable trends as follows:

– Class A-1A at AAA
– Class A-2 at AAA
– Class A-3 at AAA
– Class A-4 at AAA
– Class A-5 at AAA
– Class A-1A at AAA
– Class B at AAA
– Class X at AAA
– Class C at AA (high)
– Class D at AA (low)
– Class E at “A”
– Class F at A (low)
– Class G at BBB (high)
– Class H at BBB (low)

The pool has approximately 53 months of seasoning since issuance and its total collateral has been reduced by 6.3% through amortization and loan liquidation or prepayment; 92 of the original 94 loans remain in the pool and the current pool balance is $1,250,462,116.

The downgrades are a result of the projected liquidation losses associated with Prospectus ID#26 (The Tower, 1.8%). This loan is delinquent and in special servicing, with foreclosure proceedings expected to be completed by April 2009. The property is located in Franklin Township, New Jersey (approximately 40 miles southwest of New York), and was recently appraised with an estimated “as is” value of $10.5 million and projected market value (after curing the deferred maintenance) of $12.5 million, both of which are well below the loan’s outstanding balance of $22.4 million. In light of the new appraisal, DBRS estimates the trust will incur a loss in excess of $12 million from the liquidation of the loan.

DBRS has also removed the A (low) shadow rating of DDR-Macquarie Portfolio (6.0% of the pool) as the loan is scheduled to mature in June 2009 and may face challenges refinancing on time in the current market environment given the loan's large balloon balance and low coupon. The portfolio does benefit from a strong sponsor/manager, Developers Diversified Realty; a low loan rate of $63 per square foot; and geographic diversity within the collateral. DBRS expects the loan will ultimately obtain financing, but it may need additional time to do so.

DBRS has identified six HotListed loans, representing 6.4% of the current pool balance. This includes Prospectus ID#14 (3 Beaver Valley, 2.8%), which has uncertainty surrounding its single-tenant, American International Group, Inc. (AIG), which is on a long-term lease through January 2015, one month after loan maturity. The majority of the remaining loans on the HotList have low debt service coverage ratios (DSCRs) and all six of the loans are current.

Despite these areas of concern, the overall transaction continues to exhibit strong performance, with a weighted-average DSCR of 1.90 times (x) and nine loans (on a portfolio basis) have fully defeased, including the pool's fourth largest loan, G REIT Portfolio (5.6% of pool); seventh largest loan, Equity Industrial Partners Portfolio (4.1% of the pool); eight largest loan, International Jewelry Center (3.6% of the pool); and ninth largest loan, 660 Figueroa Tower (3.4% of the pool). In addition, AFR Bank of America Portfolio (1.3% of the pool) has had 23% of its collateral defease as of November 2008. In addition, there are four loans shadow-rated investment grade (combined 25.7% of the pool): Garden State Plaza (“A”), 731 Lexington Avenue – Bloomberg Headquarters (AAA), Tysons Corner Center (AAA) and AFR Bank of America Portfolio (AA).

The ten largest loans represent 55.0% of the pool and have a straight average DSCR of 2.28x as of YE2007, well above the total pool average DSCR of 1.53x. All of the ten largest loans have reported at least YE2007 financial statements, with the majority indicating solid performance. The pool has excellent diversity, with the largest concentrations in terms of property type and geography found in retail properties (32.8% of the pool) and properties located in New York (14.1% of the pool).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

This is a Structured Finance rating.