2011 jan wells fargo cmbs outlook

Current CMBS Outlook

Marielle Jan de BeurHead of Structured Products ResearchCMBS and Real Estate [email protected](212) 214-8047

January 24, 2011

Please see the disclosure appendix of this publication for certification and disclosure information

Chris van Heerden, [email protected](704) 715-8321

Lad [email protected](704) 715-7423

Landon [email protected](704) 715-8376

1Wells Fargo Securities, LLC

Overview

2011 Opportunities and Risks 2

Regulation: From Rulemaking to Implementation 6

Commercial Real Estate Debt Landscape 12

CMBS Defaults and Losses 21

Modifications and Appraisal Reductions 32

IO Loans Rolling to Amortization 37

Underwater Performing Loans 40

Commercial Real Estate Valuations 43

Property Market Outlook 48

CMBS Relative Value 67


2011 Opportunities and Risks


2011 Opportunities and Risks—Recommendations

At the top of the capital stack, we favor DUS paper. Compared with new issue CMBS AAAs, there is a 10 bps–20 bps in spread concession for DUS—a compelling price, in our view, for an added government guaranty and drastically lower historic spread volatility for DUS.

At a 4.1% nominal yield and 50 bps inside investment-grade corporates, 2007 dupers are looking rich to corporates. CMBS bonds merit a yield premium to reflect uncertainty in the timing of cash flows as well as the liquidity concession versus corporates.

Legacy CMBS paper will likely trade more like a credit product than the rates product it represented in the past—higher beta is here to stay. That may not be bad news so long as the recovery remains on track.

We see new issue AA to BBB CMBS tranches as cheap to comparable investment-grade credit risk. New issue BBBs trade around 300 bps-330 bps over swaps.

For credit-challenged bonds such as cuspy AJs, we believe the market is offering good exit prices for bad risk in many cases. The machinations of new NAIC risk rankings taking effect and the high likelihood of more AJs taking interest shortfalls in 2011 bear watching.


2011 Opportunities and Risks—Further Thoughts

Late into the low-interest-rate cycle, liquidity is plentiful and the credit curve flat and likely getting flatter. At this phase, there is a latent danger of underpricing risk, in our view.

High commodity and energy prices mean that any further stimulus would likely be inflationary and, therefore, harmful to consumers. Risk assets have priced in healthy growth where private domestic demand and rising exports neatly take the baton after two years of stimulus and inventory driven growth. Recent prints in the leading indicators, exports and business fixed investment point to this scenario materializing.

At the same time, we are still operating in an environment with thick risk tails:

Interest rate volatility from Q4 may carry over into the new year, as a standoff over the debt ceiling looms. In the 1996 standoff over the debt ceiling, the 10-year Treasury jumped nearly 100 bps and Moody’s put the U.S. on downgrade watch. A 2% cut in Social Security taxes to keep tax registers ringing over the holidays is precisely the reason why U.S. creditworthiness may be called into question.

Sovereign default risk persists. The EU/IMF rescue fund would be under severe pressure if a bailout of Spain and/or Italy were needed. The Irish elections in March are an inflection point to watch. Rhetoric over currency exchange rates has been tense.

Consumers are still fragile. Real average weekly earnings fell 0.2% in December. The mean unemployment duration at 34.2 weeks remains near the all-time high. The employment-to-population ratio at 58.3% remains at a level not seen since 1983. And, the recovery in the housing market has turned into Waiting for Godot.

State and local governments are likely to cut spending and hike taxes as federal aid rolls off this spring.


2011 Opportunities and Risks—Fundamentals and Performance

Delinquencies have shown little sign of easing. We continue to see a steady stream of about $4 billion in newly delinquent loans each month. Given that the most recent recession ended in June 2009 and there is typically a lag of around two years for commercial real estate, we expect delinquencies to continue to rise for at least another six months. There is also continued upward pressure on delinquencies due to the fact that the size of the CMBS market continues to shrink by $4 billion–$5 billion each month as loans mature, amortize or liquidate. We estimate the 60+ day delinquency rate will peak at 10%.

While liquidations and severity rates have leveled off, there is still more than $70 billion outstanding in special servicing. Many large loans remain in the pipeline, and we anticipate more bulk loan sales by special servicers next year. Therefore, we expect losses to remain substantial in 2011. The impact on the capital stack could be considerable as premium dollar price front-pay bonds could be affected by the ongoing threat of quick paydowns. Meanwhile, the lower-rated tranches will likely continue to feel pressure as losses rise up the capital stack.

Our commercial real estate fundamentals forecast shows strong improvement from a year ago, largely due to a better outlook in 2012. We believe the office, warehouse and retail property sectors are at or near the bottom in terms of fundamental deterioration, while the apartment sector and more volatile hotel sector are already in recovery mode thanks to shorter lease terms that allow them to react more quickly to improving economic conditions. Robust demand throughout 2010 in the apartment sector has surprised to the upside, while relaxed corporate travel restrictions and the return of the business traveler have increased hotel occupancies steadily this year over last year. Preliminary data from Reis show office properties registered positive absorption in Q4 2010 for the first period since 2007.


Regulation: From Rulemaking to Implementation


Regulation: From Rulemaking to Implementation

For CMBS investors, regulation and the climate for securitization is vital to how loan maturities are addressed in the coming years. From a macro perspective, greater friction in credit formation may hold implications for overall economic growth.

Key takeaways on regulation are

The Dodd-Frank Wall Street Reform and Consumer Protection Act is taking priority.

The FDIC Safe Harbor provisions coincided with securitizations coming on balance sheet. (New safe harbor rules became effective on Jan. 1, 2011).

Reg AB enhancements were proposed by the SEC in April 2010, addressing the marketing process and disclosure requirements for ABS securities along with risk retention requirements. (The comment period ended Aug. 2, 2010).

* A detailed timeline on in-process rulemaking is available from the American Securitization Forum at http://www.americansecuritization.com/uploadedFiles/ASFDodd-Frank_Rulemaking_Schedule.pdf


Regulation: Dodd-Frank

The Dodd-Frank Wall Street Reform and Consumer Protection Act vests the decision-making on financial regulation to administrative agencies that are now drafting rules. As it concerns securitization markets, key areas are the following:

The Financial Stability Oversight Council: The Council would have the authority to designate nonbank financial companies as systemically important and subject these to higher prudential standards. (Interconnected bank holding companies are automatically subject to the stricter standards). The Council will be empowered to order the breakup of systemically important institutions.

Systemically significant institutions would come under the FDIC’s resolution authority, possibly tying into the FDIC’s safe harbor preconditions.

Risk Retention: Risk retention can be differentiated by asset class and must take the unique nature of commercial real estate into account. For CMBS transactions, a third party may meet the risk retention requirement (although there is no such provision in the FDIC safe harbor rulemaking).

Increased ABS Disclosure: Asset level and loan level disclosure is required along with broker compensation.

Credit Rating Agency Reform: Increased disclosure by the agencies.

Volker Rule: The FSOC and the Federal Reserve Bank are responsible for writing the regulations that will enforce this piece of Dodd-Frank. The FSOC is currently finalizing a study.


Regulation: FDIC Safe Harbor

• The FDIC safe harbor rules were implemented on Jan. 1, 2011. Banks may potentially respond by issuing securitizations out of nondepository entities. However, the FDIC’s oversight role has been expanded beyond depository institutions.

• Key elements include: • Grandfathering Provision. Deals issued on or before Dec. 31, 2010, can be grandfathered in under the

previous safe harbor rules. (Paragraph (d)(2) of the proposed rule.)

• A Higher Hurdle for RMBS. Under the proposed rule, residential mortgage-backed securities face higher hurdles to qualify for safe harbor under each prerequisite for coverage. Specific examples include a limit on the number of tranches, a ban on pool level guarantees, a limit on servicer advances and a reserve for repurchases for breach of representations and warranties.

• Risk Retention. A sponsor must retain no less than 5% of credit risk in the form of vertical slice or representative sample of collateral at issuance.

• Resolution mechanics. In response to the feedback from the rating agencies, the standard has been revised to clarify that, in the event a securitization is repudiated, the recovery to investors will be based on the par value of the debt rather than the market value of the assets.

• Contingent approach addressed. Disclosure requirements have been revised to address the transaction documentation rather than making the disclosure itself a condition for the safe harbor.

• Private placement deals held to the public standard. Full disclosure is required regardless of whether a deal is public or private. In fact, the proposed rule stipulates that “information about the obligations and the securitized financial assets shall be disclosed to all potential investors at the financial asset or pool level.”


Regulation: Reg AB Revisions

On April 7, 2010, the SEC Filed a Notice of Proposed Rulemaking addressing the offering process and disclosure and reporting requirements for future ABS issuance. Whereas shelf registration previously relied on ratings, shelf eligibility would now rely on 1) risk retention, 2) third-party review of repurchase obligations, 3) certification of the depositors CEO, and 4) ongoing reporting. The document weighs in at 667 pages. The comment period for the proposed regulation ended Aug. 2, 2010. Highlights include the following:

Disclosure and reporting enhancements, including the Python waterfall model

Offering Process and Alignment of Incentives Provisions, that require a sponsor to retain a 5% unhedged interest in each tranche

Certain types of transactions are disqualified from registration

Applies essentially the same disclosure framework to private placement transactions that rely on the Reg. D or 144A exemptions.

Separately, as of June 1 all ABS issuers must provide detailed information electronically to the public regarding conversations/documents provided to the rating agencies. This may result in “hostile ratings” where rating agencies not hired for the transactions issue ratings.


Regulation: Also Out There…

Accounting standards FAS 166/167 eliminated the QSPE concept and require an ongoing analysis for consolidation of off-balance-sheet entities. As risk-retention rules take shape, consolidation remains a risk for securitization issuers and b-piece buyers.

A group of 10 legislators, as well as a group of 52 academics and commentators, submitted letters to the joint regulators in December 2010 supporting the creation of a national servicing standard. In the early phase, the discussion has been targeted at residential mortgages.

Foreclosure Gate: Early cases challenging residential foreclosures have been marked by weak legal representation on behalf of bondholders and problems in document transfer procedures at securitization. (See, Kemp v. Countrywide and U.S. Bank Nat’l Ass’n v. Ibanez. Executed deal documents were not produced at trial in either case). Increased scrutiny of foreclosures may delay resolution times and could raise liquidation expenses.

Basel III: With phased implementation periods from 2015 to 2018, Basel III appears to require significant additional capital for banks because of stricter Tier 1 and Tier 2 capital requirements, higher capital for counterparty credit risk, a leverage ratio limit and a conservation capital buffer.


Commercial Real Estate Debt Landscape


Outstanding US Commercial Real Estate Loans

• Based on Federal Reserve Flow of Funds data, 44% of commercial real estate loans are held on bank balance sheets.

• Private-label CMBS accounts for about 20% of all commercial mortgages. DUS and GSE sponsored transactions account for another 8% of the market.

Home, $10.61, 76%

Multifamily Residential, $0.85, 6%

Farm, $0.13, 1%

Commercial, $2.36, 17%

Source: Federal Reserve Flow of Funds Report 3Q010 (12/9/10).

Commercial banks

$1,428.00 44%

Savings institutions

$180.10 6%

Life insurance companies

$298.60 9%

CMBS, CDO and other ABS

issuers$640.00

20%

Government-sponsored enterprises

$251.30 8%

Finance companies

$65.90 2%

Other$338.60

11%


Estimated Commercial Mortgage Maturities

CMBS Accounts for 16% of 2011 CRE Debt Maturities

• Bank CRE portfolios are weighted toward three- to five-year floating-rate debt. Comparatively, insurance company portfolios have higher concentrations of 10-year and 15-year maturities.

($billion) 2010E 2011E 2012E

Banks 227.8 250.5 275.6

Insurance Companies 23.7 26.7 27.3

CMBS Total 48.5 54.2 59.9

TOTAL 299.9 331.5 362.7

Source: ACLI, Federal Reserve Board of Governors and

Wells Fargo Securities, LLC's estimates.

*CMBS total includes large-loan floating rate to first maturity.


Commercial Mortgage Delinquencies

CMBS Delinquencies Move Above Bank Loan Levels

• Credit performance is deteriorating more for bank loans and CMBS than for life company loans. Bank loans are fairly easy to modify, so problem loans can be “cured” quickly with modifications. Modifications within CMBS are more prevalent now than any time in history.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2006 -

- Q

1

2006 -

- Q

2

2006 -

- Q

3

2006 -

- Q

4

2007 -

- Q

1

2007 -

- Q

2

2007 -

- Q

3

2007 -

- Q

4

2008 -

- Q

1

2008 -

- Q

2

2008 -

- Q

3

2008 -

- Q

4

2009 -

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1

2009 -

- Q

2

2009 -

- Q

3

2009 -

- Q

4

2010 -

- Q

1

2010 -

- Q

2

2010 -

- Q

3

CMBS (60+ days) Life Companies (60+ days) Banks & Thrifts (90+ days)

Source: Mortgage Bankers Association.


US CMBS Maturities

• CMBS debt maturities will likely accelerate over the next few years with peak levels occurring in 2016 and

2017.

• In 2009, about 70% of maturing CMBS loans were able to refinance; however, in 2010 that number declined

to about 54%.

1.6

54.9

40.4

52.3

97.9

6.91.9

34.5

0.2 0.2 0.4 0.2 0.8

37.3

133.6 136.7

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013 2014 2015 2016 2017 2018

Mat

urities

($Bill

ions)

Fixed-Rate Conduit

Large-Loan Floating-Rate / Single Asset

Note: Floating-rate maturities are to the first maturity date.Source: Wells Fargo Securities, LLC and Intex Solutions, Inc.


CMBS Maturities – Fixed Rate

Future Maturities by Deal Vintage ($billion outstanding)Fixed-Rate Conduit/Fusion Deals

Month 1995-1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 TOTALSExt.* 0.37 0.71 1.67 0.28 0.03 0.85 1.05 3.97 0.48 0.03 0.00 0.00 0.00 9.43Mat.** 0.02 0.01 0.22 0.44 0.03 0.12 0.16 0.98 0.78 0.01 0.00 0.00 0.00 2.772011 0.36 0.22 0.13 10.58 3.21 0.25 4.36 2.82 11.78 2.56 0.05 0.00 0.00 36.332012 1.03 0.11 0.21 0.15 13.14 4.62 0.73 8.64 1.92 20.78 0.76 0.00 0.00 52.072013 1.66 1.20 0.17 0.29 0.22 21.28 6.42 0.90 4.55 3.23 0.30 0.00 0.00 40.222014 0.09 0.20 0.06 0.11 0.03 0.74 31.75 8.80 0.65 9.28 0.43 0.00 0.05 52.202015 0.06 0.08 0.16 0.06 0.01 0.28 0.66 79.17 15.69 0.82 0.01 0.00 0.74 97.762016 0.19 0.03 0.03 0.35 0.13 0.10 0.73 1.39 111.75 18.45 0.10 0.00 0.00 133.262017 0.68 0.02 0.03 0.02 0.23 0.16 0.11 1.00 1.55 128.74 6.21 0.00 0.16 138.932018 0.73 0.38 0.04 0.08 0.01 0.52 0.30 0.20 0.94 1.16 2.44 0.00 0.00 6.812019 0.15 0.17 0.04 0.03 0.04 0.05 0.91 0.26 0.28 0.50 0.00 0.00 0.00 2.432020 0.09 0.07 0.06 0.10 0.02 0.06 0.01 1.32 0.39 0.07 0.00 0.00 0.86 3.04TOTALS 5.43 3.21 2.81 12.49 17.10 29.05 47.20 109.47 150.77 185.62 10.29 0.00 1.80 575.24

* Extended at least two months beyond the maturity date.** At maturity. Includes loans extended 1 month.Note: Excludes defeased loans.Sources: Wells Fargo Securities, LLC, Intex Solutions, Inc., Trepp, LLC.


CMBS Maturities – Floating Rate

Future Maturities by Deal Vintage ($billion outstanding)Large-Loan Floating-Rate and Single Asset/Single Borrower Deals - Current Maturity Date

Month 2002 2003 2004 2005 2006 2007 2008 2009 2010 TOTALSExt.* 0.00 0.00 0.00 0.00 0.00 2.03 0.00 0.00 0.00 2.03Mat.** 0.00 0.00 0.00 0.44 0.10 1.67 0.00 0.00 0.00 2.222011 0.00 0.12 0.43 1.60 14.84 17.32 1.44 0.00 0.00 35.752012 0.04 0.07 0.00 0.00 0.00 0.05 0.00 0.00 0.00 0.162013 0.00 0.18 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.182014 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.402015 0.00 0.00 0.00 0.00 0.20 0.00 0.00 0.00 0.00 0.202016 0.00 0.00 0.00 0.00 0.80 0.00 0.00 0.00 0.00 0.802017 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.46 0.00 0.462018 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002019 0.00 0.00 0.00 0.26 0.00 0.00 0.00 0.50 0.00 0.762020 0.15 0.00 0.00 0.00 1.04 0.00 0.00 0.00 2.44 3.63TOTALS 0.19 0.37 0.43 2.30 16.98 21.07 1.44 1.35 2.44 46.58

* Extended at least two months beyond the maturity date.** At maturity. Includes loans extended 1 month.Note: Excludes defeased loans.Sources: Wells Fargo Securities, LLC, Intex Solutions, Inc., Trepp, LLC.


US CMBS Issuance Trends

• Annual CMBS issuance peaked in 2007 at $230 billion. Since then, issuance volume remains below 1992

levels.

• Based on the current forward pipeline of $13 billion in process and the velocity of lending we are seeing from

the collateral providers, we anticipate U.S. CMBS issuance will total about $50 billion in 2011.

50

13712

230

204

169

9478

5268

475774

372716161714

0

25

50

75

100

125

150

175

200

225

250

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011 E

st

Issu

an

ce (

$B

illion

s)

Note: Excludes agency deals and resecuritizations. 2011 is an estimate.Source: Wells Fargo Securities, LLC and Intex Solutions, Inc.


CMBS Collateral Performance by Originator (2003–2008) as of October 2010.

NomuraJPMorgan

LaSalle

Bear Stearns

Goldman

Morgan StanleyWells Fargo

Merrill LynchPrincipal WachoviaLehman GACC

PrudentialBofA

Credit SuisseGE

CitiUBS

Greenwich

Midland

CIBC1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

64 65 66 67 68 69 70 71 72 73 74 75

Original LTV (%)

Ori

gin

al

DS

CR

Source: Wells Fargo Securities, LLC and Intex Solutions, Inc.

Underwriting Metrics

Collateral Performance Metrics

Nomura

BofA

Bear Stearns

CIBC

Citi

Credit Suisse

GACC

GEGoldman

Greenwich

JPMorgan

LaSalle

Lehman

Merrill Lynch

Midland

Morgan Stanley

Principal

Prudential

UBS

Wachovia

Wells Fargo

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8%

Cumulative Loss %

Sp

eci

all

y S

erv

iced

%



CMBS Defaults and Losses


CMBS 60+ Day Delinquencies—Fixed-Rate Conduit

• We anticipate a continued rise in CMBS delinquencies over the next 6-12 months before peak levels are reached, similar to the performance from the early 1990s recession. We also anticipate peak CMBS delinquency levels to exceed peak levels from the early 1990s due to significant pro forma cash flows.

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%9.0%9.5%

10.0%

1/0

0

7/0

0

1/0

1

7/0

1

1/0

2

7/0

2

1/0

3

7/0

3

1/0

4

7/0

4

1/0

5

7/0

5

1/0

6

7/0

6

1/0

7

7/0

7

1/0

8

7/0

8

1/0

9

7/0

9

1/1

0

7/1

0

1/1

1

7/1

1

1/1

2

Del

inquen

cy R

ate

(% o

f cu

rren

t bal

ance

)

Source: Wells Fargo Securities, LLC, and Intex Solutions, Inc.

Currently: 8.32%

Projected Peak: 10.0%


Historical CMBS Loss Severities

Loss Severity by Time of Loss

0%

10%

20%

30%

40%

50%

60%

70%

Jan-0

0M

ay-0

0Sep

-00

Jan-0

1M

ay-0

1Sep

-01

Jan-0

2M

ay-0

2Sep

-02

Jan-0

3M

ay-0

3Sep

-03

Jan-0

4M

ay-0

4Sep

-04

Jan-0

5M

ay-0

5Sep

-05

Jan-0

6M

ay-0

6Sep

-06

Jan-0

7M

ay-0

7Sep

-07

Jan-0

8M

ay-0

8Sep

-08

Jan-0

9M

ay-0

9Sep

-09

Jan-1

0M

ay-1

0Sep

-10

Jan-1

1M

ay-1

1Sep

-11

Jan-1

2

Sev

erity

(%)

Note: Excludes severities below 2%.Source: Wells Fargo Securities, LLC, Intex Solutions, Inc., and Trepp, LLC.

Next 12 Mos: Around 60%

Currently: 59%


CMBS Recovery Times

Average Time of Months to Recover by Year the Liquidation Occurred

13.2

16.1 16.7 16.9 16.7

15.214.5 14.4

8.2

10.711.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year Liquidation Occurred

Mon

ths

to L

iquid

ate

Source: Wells Fargo Securities, LLC, Intex Solutions, Inc., and Trepp, LLC.

Length of Time in Special Servicing for Currently Outstanding Loans

3.3 3.4

2.2 2.32.5

3.6

2.8

5.7

4.3

3.63.9

3.0

5.7

2.72.2

3.2

1.72.2

1.8

3.7

2.2

1.71.2

1.0

4.9

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 >24

Months in Special Servicing

Am

ount

Outs

tandin

g (

$Bill

ions)

Source: Wells Fargo Securities, LLC, and Trepp LLC.


CMBS Monthly Losses

Losses totaled $4.3 billion in 2010.

29 24 21 19 19 14 19 5 848

19 30 5428

120

312316

803

490

385

284

455

332

52

245

163

251

115143134

57 4548

3827

459

-

100

200

300

400

500

600

700

800

900

Jan-0

8Feb-0

8M

ar-

08

Apr-

08

May-0

8Ju

n-0

8Ju

l-08

Aug-0

8Sep-0

8O

ct-0

8N

ov-0

8D

ec-

08

Jan-0

9Feb-0

9M

ar-

09

Apr-

09

May-0

9Ju

n-0

9Ju

l-09

Aug-0

9Sep-0

9O

ct-0

9N

ov-0

9D

ec-

09

Jan-1

0Feb-1

0M

ar-

10

Apr-

10

May-1

0Ju

n-1

0Ju

l-10

Aug-1

0Sep-1

0O

ct-1

0N

ov-1

0D

ec-

10

Tota

l Lo

sses

($M

illions)

0%

10%

20%

30%

40%

50%

60%

70%

CM

BS S

everi

ty %

Losses ($) Severity - 6 Mo. Avg (All) Severity - 6 Mo. Avg (>2%)*

* This only includes loans that suffered loss severities greater than 2%.Source: Wells Fargo Securities, LLC, and Intex Solutions, Inc.


Summary of CMBS Losses from January 2009 – May 2010

VintageLosses ($Mil)

Loan Count

Severity >2%

Severity All Loans

Property Type

Losses ($Mil)

Loan Count

Severity >2%

Severity All Loans

Orig Loan Size ($Mil)

Losses ($Mil)

Loan Count

Severity >2%

Severity All Loans

1995 0.8 1 31.7% 31.7% MF 693.8 261 64.7% 49.7% >50 81.6 10 93.6% 10.2%1996 9.1 2 47.4% 47.4% RT 565.5 275 60.0% 35.6% 25 - 50 206.1 28 51.7% 23.7%1997 40.2 16 54.6% 46.7% OF 443.8 168 56.1% 27.4% 10 - 25 463.8 94 57.7% 37.3%1998 116.0 73 68.4% 42.5% IN 92.2 53 59.2% 33.0% 1 - 10 1,200.2 680 62.6% 47.9%1999 134.7 157 55.0% 21.1% HT 78.3 39 56.0% 22.9% <1 7.5 42 47.3% 28.2%2000 175.2 133 61.0% 26.3% MH 28.2 24 81.7% 44.7%2001 149.4 55 57.6% 44.7% OT 25.8 2 73.0% 73.0%2002 153.3 50 59.3% 50.2% MX 17.9 13 66.0% 53.5%2003 98.6 32 65.8% 63.5% SH 7.7 9 35.9% 22.1%2004 162.7 76 53.7% 21.9% SS 6.2 10 69.1% 11.8%2005 325.6 90 66.8% 26.4%2006 341.2 85 63.0% 61.8%2007 230.8 78 60.5% 59.6%2008 21.5 6 44.5% 44.5%

Geographic Region

Losses ($Mil)

Loan Count

Severity >2%

Severity All Loans

Orig LTV (%)

Losses ($Mil)

Loan Count

Severity >2%

Severity All Loans

Orig DSCRLosses ($Mil)

Loan Count

Severity >2%

Severity All Loans

Midwest 566.5 201 67.3% 52.3% >90 22.8 16 51.9% 43.3% >1.8 165.6 75 63.3% 20.4%Southeast 466.6 226 58.9% 35.3% 80 - 90 229.1 88 57.3% 34.8% 1.6 - 1.8 170.9 105 56.8% 23.6%Southwest 453.5 174 65.1% 52.1% 70 - 80 1,301.0 515 63.1% 43.1% 1.4 - 1.6 570.6 265 61.0% 37.2%Northeast 236.7 138 50.7% 17.9% 60 - 70 312.1 164 58.9% 24.9% 1.2 - 1.4 694.4 332 60.1% 39.6%

West 202.4 108 52.1% 31.9% 50 - 60 73.0 54 52.4% 23.3% 1.0 - 1.2 215.1 53 68.3% 64.1%Other 33.4 7 78.2% 16.0% <50 3.8 10 13.5% 3.1% <1.0 142.5 23 55.5% 50.3%

Notes: 1) For original DSCR we used the NOI DSCR unless it was unavailable. 2) For the property types: HT = hotel, IN = industrial, MF = multifamily, MH = manuf housing, MX = mixed use, OF = office, RT = retail, SH = senior housing, OT = other, SS = self storage. 3) We inlcude two severityrate calculations. One includes all loans that were liquidated with a loss and the other excludes loans with loss severities below 2%.Source: Wells Fargo Securities, LLC and Intex Solutions, Inc.

Year of Liquidation

Liquidation Expenses as a % of the Disposed Loan Amount

Property Type

Liquidation Expenses as a % of the Disposed Loan Amount

2000 12.18% HT 22.16%2001 9.15% HC 16.34%2002 14.79% MF 15.83%2003 17.45% MU 13.71%2004 16.55% OF 12.35%2005 14.91% IN 12.09%2006 16.70% RT 11.29%2007 16.86% OT 10.83%2008 11.03% SS 9.89%2009 12.70% MH 7.84%2010 12.95%

Source: Trepp, LLC.

Liquidation Expenses


CMBS Historical Loss Experience

. Historical 10-year CMBS cumulative losses range between 1.5% and 3.5%. We anticipate a significant dispersion in losses on recent-vintage deals based on the amount of pro forma cash flows. In aggregate, we anticipate the 2007 vintage will post 9% cumulative losses, the late 2006 vintage will post 8% losses and the 2005 and early 2006 vintage will post 5%–6% cumulative losses.

19981999

2000

2001

2002

200320042005

20062007

2008

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

1 9 17 25 33 41 49 57 65 73 81 89 97 105 113 121 129 137 145 153

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008



Cumulative Losses by Vintage

1.9%1.2%

0.2% 0.2% 0.2% 0.1% 0.0% 0.1%

2.7%2.1%

3.5% 3.5% 3.5% 3.5%

6.0%

8.0%

9.0% 9.0%

0.7%1.2% 0.8%

0.5%0.7%0.7%0.6%0.7%

3.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008

Vintage

Cum

ula

tive

Los

s %

Cumulative Losses as of 12/2009

Cumulative Losses as of 12/2010

Estimated 10Yr Cumulative Loss

Source: Wells Fargo Securities, LLC, and Intex Solutions, Inc.


CMBS Historical Cumulative Default Experience


1998

1999

2000

2001

20022003

2004

20052006

2007

2008

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


Percentage Delinquent versus Percentage Specially Serviced

04 SS%

05 SS%06 SS%

07 SS%

04 Delinq%

05 Delinq%06 Delinq%

07 Delinq%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89

Months Since Origination



CMBS Delinquency Trends

-6

-4

-2

0

2

4

6

8

10

12

Jan-0

8Feb-0

8M

ar-

08

Apr-

08

May-0

8Ju

n-0

8Ju

l-08

Aug-0

8Sep-0

8O

ct-0

8N

ov-0

8D

ec-

08

Jan-0

9Feb-0

9M

ar-

09

Apr-

09

May-0

9Ju

n-0

9Ju

l-09

Aug-0

9Sep-0

9O

ct-0

9N

ov-0

9D

ec-

09

Jan-1

0Feb-1

0M

ar-

10

Apr-

10

May-1

0Ju

n-1

0Ju

l-10

Aug-1

0Sep-1

0O

ct-1

0N

ov-1

0D

ec-

10

$B

illion

s

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

% D

elin

qu

en

t

Newly Delinquent ($)

Newly Current ($)

Change in Total CMBS Bal ($)

30+ Delinquency (%)

60+ Delinquency (%)



Severity Rates and Recovery Time

Loss Severity and Liquidation Expenses Compared to Recovery Time

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Months to Recover

Loss Severity %

Liquidation Expenses as a % of theDisposed Loan Balance

Source: Wells Fargo Securities, LLC and Trepp, LLC.

Monthly CMBS Liquidations

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan-0

8Feb-0

8M

ar-

08

Apr-

08

May-0

8Ju

n-0

8Ju

l-08

Aug-0

8Sep-0

8O

ct-0

8N

ov-0

8D

ec-

08

Jan-0

9Feb-0

9M

ar-

09

Apr-

09

May-0

9Ju

n-0

9Ju

l-09

Aug-0

9Sep-0

9O

ct-0

9N

ov-0

9D

ec-

09

Jan-1

0Feb-1

0M

ar-

10

Apr-

10

May-1

0Ju

n-1

0Ju

l-10

Aug-1

0Sep-1

0O

ct-1

0N

ov-1

0D

ec-

10

$M

illio

ns

Loss Amount ($)

Ending Loan Bal ($)



Modifications and Appraisal Reductions


Recent Modification Experience

Summary of Loan Maturity Extensions

-

2

4

6

8

10

12

14

16

Jan-0

9

Feb-0

9

Mar-

09

Apr-

09

May-0

9

Jun-0

9

Jul-

09

Aug-0

9

Sep-0

9

Oct

-09

Nov-0

9

Dec-

09

Jan-1

0

Feb-1

0

Mar-

10

Apr-

10

May-1

0

Jun-1

0

Jul-

10

Aug-1

0

Sep-1

0

Oct

-10

Month of Modification

$ B

illio

ns

0

10

20

30

40

50

60

70

80

90

100

Lo

an

Co

un

t

Loan Balance ($Billions)

Loan Count

Source: Wells Fargo Securities, LLC, and Bloomberg.

Year Average Max Min2010 206 34 99 32009 126 27 78 22008 6 19 27 122007 2 31 47 14

Source: Bloomberg, LP.

MonthsNumber of Extensions


Recent Modification Experience

VintageOrig Bal ($Mil)

Loan Count

Property Type

Orig Bal ($Mil)

Loan Count


Orig Bal ($Mil)

Loan Count

1997 6.0 2 RT 10,980.6 174 >50 12,404.3 911998 286.8 8 MF 1,796.4 116 25 - 50 1,830.2 501999 303.1 43 OF 1,560.5 72 10 - 25 1,402.8 912000 243.8 21 HT 927.9 36 1 - 10 1,104.3 2202001 439.4 19 MX 577.7 14 <1 2.0 32002 20.7 5 IN 345.2 272003 1,043.0 24 SH 229.6 22004 2,719.4 87 OT 227.7 52005 4,992.5 79 SS 68.3 22006 4,013.5 83 MH 29.8 72007 2,532.0 732008 143.6 11

Geographic Region

Orig Bal ($Mil)

Loan Count

Orig LTV (%)

Orig Bal ($Mil)

Loan Count

Orig DSCROrig Bal ($Mil)

Loan Count

West 4,914.5 95 >80 570.6 9 >1.8 5,415.6 66Northeast 2,954.0 65 70 - 80 5,697.5 249 1.6 - 1.8 3,089.7 50Southeast 2,953.8 96 60 - 70 4,281.8 128 1.4 - 1.6 2,089.6 93Midwest 2,912.1 93 50 - 60 5,368.7 57 1.2 - 1.4 4,973.7 217

Southwest 2,729.0 104 <50 820.8 11 1.0 - 1.2 1,113.5 24Other 280.4 2


Loan Count

Property Type

Orig Bal ($Mil)

Loan Count


Orig Bal ($Mil)

Loan Count

1997 6.0 2 RT 1,889.3 98 >50 4,067.1 361998 286.8 8 MF 1,796.4 116 25 - 50 1,139.0 331999 258.1 42 OF 1,560.5 72 10 - 25 1,339.9 872000 243.8 21 HT 927.9 36 1 - 10 1,104.3 2202001 166.6 15 MX 577.7 14 <1 2.0 32002 20.7 5 IN 345.2 272003 154.8 12 SH 229.6 22004 1,183.4 71 OT 227.7 52005 1,716.5 55 SS 68.3 22006 1,346.1 69 MH 29.8 72007 2,175.0 692008 94.6 10

Geographic Region

Orig Bal ($Mil)

Loan Count

Orig LTV (%)

Orig Bal ($Mil)

Loan Count


Loan Count

West 1,925.2 74 >80 570.6 9 >1.8 1,631.2 42Northeast 1,922.7 58 70 - 80 3,802.0 227 1.6 - 1.8 861.6 29Midwest 1,294.9 77 60 - 70 1,587.6 98 1.4 - 1.6 895.2 83

Southwest 1,291.9 91 50 - 60 1,572.0 38 1.2 - 1.4 3,113.1 197Southeast 937.2 77 <50 115.8 6 1.0 - 1.2 1,089.5 23

Other 280.4 2

Source: Wells Fargo Securities, LLC and Bloomberg, LP.

Including GGP

Excluding GGP


Loan Count

Property Type

Orig Bal ($Mil)

Loan Count


Orig Bal ($Mil)

Loan Count

1998 255.4 3 RT 8,699.2 106 >50 9,490.5 651999 242.7 40 OF 981.4 35 25 - 50 1,035.8 282000 192.6 18 MF 886.3 58 10 - 25 682.5 432001 303.8 7 HT 391.7 14 1 - 10 479.9 992002 1.4 1 SH 229.6 2 <1 2.0 32003 689.3 14 MX 222.3 62004 2,581.2 79 OT 177.1 22005 3,906.2 44 IN 83.4 92006 2,350.2 14 MH 19.7 62007 1,118.7 172008 49.0 1

Geographic Region

Orig Bal ($Mil)

Loan Count

Orig LTV (%)

Orig Bal ($Mil)

Loan Count


Loan Count

West 3,728.2 61 >80 570.6 9 >1.8 4,693.8 55Southeast 2,201.6 50 70 - 80 2,831.4 114 1.6 - 1.8 2,570.0 37Northeast 2,031.0 34 60 - 70 3,146.5 69 1.4 - 1.6 1,503.8 42Midwest 1,833.9 41 50 - 60 4,702.5 39 1.2 - 1.4 2,328.2 92

Southwest 1,615.5 50 <50 439.6 7 1.0 - 1.2 594.9 12Other 280.4 2


Loan Count

Property Type

Orig Bal ($Mil)

Loan Count


Orig Bal ($Mil)

Loan Count

1998 255.4 3 RT 1,130.4 51 >50 2,291.5 201999 242.7 40 OF 981.4 35 25 - 50 677.9 192000 192.6 18 MF 886.3 58 10 - 25 670.6 422001 31.1 3 HT 391.7 14 1 - 10 479.9 992002 1.4 1 SH 229.6 2 <1 2.0 32003 86.5 5 MX 222.3 62004 1,131.6 66 OT 177.1 22005 1,053.3 25 IN 83.4 92006 253.6 7 MH 19.7 62007 873.7 15

Geographic Region

Orig Bal ($Mil)

Loan Count

Orig LTV (%)

Orig Bal ($Mil)

Loan Count


Loan Count

West 1,160.1 46 >80 570.6 9 >1.8 1,220.8 35Northeast 1,023.7 28 70 - 80 1,646.8 103 1.6 - 1.8 800.3 22Midwest 732.8 32 60 - 70 726.2 44 1.4 - 1.6 364.3 33

Southeast 482.8 35 50 - 60 1,132.5 23 1.2 - 1.4 1,141.5 81Southwest 442.0 40 <50 45.7 4 1.0 - 1.2 594.9 12

Other 280.4 2

Source: Wells Fargo Securities, LLC and Bloomberg, LP.

Including GGP

Excluding GGP

All Modifications Only Maturity Extensions


Appraisal Reductions

Ending Loan Balance $10,000,000Realized Loss $5,250,000

Priority of Payment Re-pay the servicer foradvances, fees, and expenses

$1,000,000

Proceeds from the Sale Pay down the most senior tranches$6,000,000 that suffered interest shortfalls

$250,000

Use the remaing proceeds to pay down the unpaid loan balance

$4,750,000

Source: Wells Fargo Securities, LLC

1

2

3

ARA Calculation

1) Outstanding Exposure = Current Loan Balance + Unpaid Interest + Outstanding Advances

2) Total Property Value = (Appraised Value x 90%) + Outstanding EscrowsARA = Outstanding Exposure - Total Property Value

ASER Calculation

1) Interest Advance % = (Current Loan Balance - ARA) / Current Loan Balance

2) Interest Advance = Monthly Interest Payment x Interest Advance %ASER = Monthly Interest Payment - Interest Advance

Source: Wells Fargo Securities, LLC and Fitch.


Principal Write-Downs

Deal Ticker Loan NameOrig Bal ($MM)

Cur Bal ($MM)

Principal Writedown

($MM)

Writedown % of Orig

BalLoan

AssumedModification

DateProperty

TypeJPMCC 2006-CB15 Landmark Building 8.50 3.55 4.81 56.5% Yes 18-Dec-09 OFLBUBS 2004-C2 Shops at Cumberland Place 5.11 1.85 2.87 56.2% Yes 14-Jun-10 RTMSC 2006-HQ8 The Shoppes at Mirador Square 8.30 3.50 4.63 55.8% No 30-Apr-10 RTHCC 2006-1 Turtle Creek Apartments 14.46 7.00 7.25 50.2% Yes 05-May-10 MFLBUBS 2007-C1 Lubbock Square Apartments 4.55 2.33 2.23 48.9% Yes 21-May-10 MFCSFB 2005-C2 Providence Apartments 6.40 3.04 3.04 47.5% Yes 10-Jun-10 MFMLMT 2006-C2 Casa Carranza Mesa 8.55 3.45 3.94 46.1% Yes 28-Apr-10 MFGECMC 2003-C2 Crossings at Roswell 4.79 1.99 2.19 45.7% Yes 14-Jun-10 RTLBUBS 2006-C7 Lakewood Apartment Portfolio 4.10 2.25 1.84 44.9% No 01-Jan-10 MFBACM 2004-1 Sterling University Estates 10.69 5.07 4.72 44.2% Yes 11-Dec-08 MFCD 2006-CD3 Spectrum Centre 7.00 3.96 2.96 42.3% No 29-Dec-09 OFJPMCC 2007-LDPX Sagebrook Apartments - Las Vegas, NV 10.60 6.25 4.35 41.0% No 09-Mar-10 MFCSFB 2005-C2 Indigo on Forest Apartments 37.00 20.01 15.14 40.9% Yes 10-Jun-10 MFJPMCC 2007-LDPX Ashton Oaks Apartments 14.25 8.50 5.75 40.4% No 07-Apr-10 MFCOMM 2006-C8 University Commons - Urbana 16.58 9.92 6.66 40.2% Yes 15-Dec-08 MFCOMM 2006-C8 JPIM Self Storage Portfolio 66.40 40.00 26.40 39.8% Yes 18-Mar-10 SSJPMCC 2007-LDPX Tanque Verde Apartments 17.30 11.00 6.30 36.4% Yes 25-Mar-10 MFCSMC 2007-C1 La Vista Townhomes 7.47 4.75 2.67 35.8% Yes 22-Jun-09 MFMLMT 2005-MCP1 HSA Industrial Portfolio I - EGL Eagle Global 63.00 11.70 22.32 35.4% Yes 29-Dec-09 INGECMC 2002-2A Sterling University Court 13.04 7.10 4.53 34.7% Yes 09-Dec-08 MFMLCFC 2006-2 Brookview Apartments 4.89 3.25 1.59 32.5% Yes 22-Apr-10 MFWBCMT 2007-C31 400 Centennial Parkway 5.18 3.50 1.68 32.4% No 11-Jan-10 OFMSC 2005-IQ9 Bermuda Run 8.99 6.30 2.90 32.2% Yes 07-Jan-10 MFCD 2006-CD3 2020 Hurley Way 8.00 4.63 2.30 28.8% No 11-Aug-09 OFBACM 2005-5 Arboretum Apartments 19.00 13.00 5.40 28.4% Yes 30-Dec-09 MFLBUBS 2007-C1 Bethany Blanding Place 16.70 12.00 4.70 28.1% Yes 26-Mar-10 MFCGCMT 2007-C6 Serino's Italian Foods (A-1 note) 2.09 1.43 0.56 27.0% No 03-May-10 MUJPMCC 2005-LDP4 The Crescent 8.80 6.50 2.17 24.6% No 30-Sep-09 OFLBUBS 2006-C7 Edgewater & Westcourt Apartments 3.75 2.83 0.90 24.0% No 01-Jan-10 MFMLMT 2006-C2 The Shops of Fairlawn (A note) 13.38 9.92 3.20 23.9% No 08-Dec-09 RTCSMC 2006-C4 A&F Service Center 4.14 3.00 0.87 20.9% No 08-Jun-10 RTMLMT 2006-C1 Country Inn & Suites - Deer Valley 7.39 4.52 1.50 20.3% No 01-Mar-10 LOWBCMT 2007-C32 Sunset Ridge Center 6.00 4.00 1.05 17.5% No 25-Sep-09 RTLBUBS 2006-C1 Palmiers Apartments 5.10 - 0.87 17.1% Yes 11-Mar-09 MFMSC 2007-HQ11 Yearling Green Apartments 2.57 1.58 0.43 16.6% No 14-Dec-09 MFMSC 2007-IQ14 Cedar Run Corporate Center 8.00 5.50 1.25 15.6% No 01-Jun-10 OFMSC 2007-HQ11 Central Park I 4.24 3.43 0.63 14.9% No 01-Sep-08 RTMSC 2005-IQ10 Corte Freccia 6.99 4.35 1.00 14.3% Yes 18-May-10 RTBSCMS 2006-PW13 Days Inn Banning 2.44 2.03 0.25 10.2% No 23-Feb-10 LOMSC 2006-IQ12 College Park Athens 12.00 9.74 1.18 9.8% Yes 23-Oct-09 MFJPMCC 2005-LDP4 University Club 13.70 11.72 1.32 9.6% Yes 15-May-09 MFCSMC 2007-C2 Tartan Square 3.24 2.60 0.25 7.6% No 01-Dec-09 RTMLMT 2006-C2 The Lake in the Woods 13.29 12.47 0.18 1.3% No 08-Mar-10 MF

Source: Wells Fargo Securities, LLC, Trepp, LLC, and trustee reports.

Vintage LnCnt

Property Type LnCnt

Orig Loan Size ($MM) LnCnt Special Servicer LnCnt

2007 13 MF 23 >20 3 JE Roberts 172006 18 RT 9 15 - 20 4 Midland 82005 8 OF 6 10 - 15 9 LNR Partners 72004 2 LO 2 5 - 10 16 CWCapital 62003 1 IN 1 1 - 5 11 C-III Asset Management 22002 1 MU 1 Helios AMC 2

SS 1 ING Clarion Partners 1

Source: Wells Fargo Securities, LLC, Trepp, LLC, and trustee reports.

CMBS Loans with Principal Write-downs

Summary of Principal Write-downs


IO Loans Rolling to Amortization



VintageCur Loan Bal ($Bil)

% of Vintage

Loan Count

% of Vintage

Cur Loan Bal ($Bil)

Loan Count

2005 12.9 10.2% 665 6.6% 126.0 10,115

2006 33.0 20.8% 1,605 13.6% 158.3 11,795

2007 42.7 22.4% 3,113 26.4% 190.2 11,807

2008 4.2 39.5% 288 35.3% 10.6 816

Source: Wells Fargo Securities, LLC and Trepp LLC.

Remaining Partial IO Loans Vintage Total

Partial IO Loans in CMBS by Vintage Partial IO Loans Rolling to Amortization

3.9

0.8

31.5

27.428.6

0

5

10

15

20

25

30

35

2010 2011 2012 2013 2014

Year Partial IO Period Ends

Loan B

ala

nce

($Bln

s)0

500

1,000

1,500

2,000

2,500

Loan C

ount

Loan Bal ($)

Loan Count


• Based on current loan balances, partial IO loans account for 20.8% ($33.0 billion) of the 2006 vintage and 22.4% ($42.7 billion) of the 2007 vintage.

• Partial IO loans only account for about 10.2% of the 2005 vintage, but that is largely because many of those loans have already switched over to amortization.

• Most of the remaining partial IO terms are ending over the next three years, with 2010 being the single largest year at $31.5 billion spread across 2,236 loans.

• Another $27.4 billion and $28.6 billion roll to amortization in 2011 and 2012, respectively.



Deal Name Loan Name Cur Bal ($)IO Periods Remaining

Cur DSCR

DSCR After Amort Delinq Status

Prop Type Location

% of Deal Bal

Maturity Date

WBCMT 2006-C23 1775 Broadway 250,000,000 1 1.09 0.89 Grace Period OF New York, NY 6.04% 11-Jan-16WBCMT 2005-C22 Hyatt Center(1) 162,500,000 11 1.21 0.97 Current OF Chicago, IL 6.65% 11-Nov-15MLCFC 2007-9 DLJ West Coast Hotel Portfolio 130,100,000 7 1.12 0.97 90+ LO Various 4.66% 06-Jul-12MLMT 2006-C2 Mall at Whitney Field 74,750,000 7 1.17 0.96 <30 RT Leominster, MA 5.62% 05-Jul-16JPMCC 2005-LDP4 Creekside Apartments 68,000,000 8 1.21 0.95 Current MF Bensalem, PA 2.69% 11-Aug-15LBUBS 2005-C5 Palmolive Building Retail 52,800,000 8 1.18 0.95 Current RT Chicago, IL 2.32% 11-Aug-15MLCFC 2007-9 St. Louis Flex Office Portfolio 52,450,000 2 1.01 0.88 Current IN Various, MO 1.88% 08-Aug-17JPMCC 2005-LDP2 Cross Creek Shopping Center 46,000,000 6 1.09 0.87 30+ RT Memphis, TN 1.63% 01-Jun-15WBCMT 2005-C22 Monte Viejo Apartments 41,500,000 10 1.20 0.96 Current MF Phoenix, AZ 1.70% 11-Oct-15WBCMT 2005-C22 Birtcher Phoenix Pool 40,960,000 10 1.21 0.98 Current OF Phoenix, AZ 1.68% 11-Oct-15JPMCC 2006-LDP9 Crossroads Center 39,500,000 10 1.17 0.93 Current RT Waterloo, IA 0.82% 05-Oct-16WBCMT 2007-C30 Eastland Center 39,500,000 10 1.14 0.81 Current RT Harper Woods, MI 0.50% 11-Oct-16JPMCC 2005-LDP4 Sterling Pointe Shopping Center 38,775,000 8 1.04 0.83 Current RT Lincoln, CA 1.54% 01-Aug-15MSC 2007-IQ16 Crowne Plaza- Addison 37,000,000 9 1.13 0.96 Current LO Addison, TX 1.43% 01-Sep-17GECMC 2005-C2 Wellington Meadows Apartments 36,000,000 4 1.00 0.79 Current MF Las Vegas, NV 2.30% 01-Apr-15WBCMT 2006-C24 Woodbridge Hilton Pool(2),(3) 36,000,000 12 1.13 0.87 Current MU Iselin, NJ 2.21% 11-Dec-15CD 2006-CD3 St. Ives Apartments 35,800,000 9 1.16 0.98 Current MF Philadelphia, PA 1.02% 01-Sep-16JPMCC 2007-LD11 Doubletree Bakersfield 35,000,000 6 1.16 0.98 90+ LO Bakersfield, CA 0.65% 10-Jun-12BACM 2005-5 Thunder Hollow Apartments 33,500,000 5 1.05 0.87 30+ MF Bensalem, PA 1.81% 01-Jun-12JPMCC 2007-LD12 Comfort Inn - San Diego Zoo 33,500,000 8 1.09 0.94 <30 LO San Diego, CA 1.34% 11-Aug-17LBUBS 2005-C3 Medlock Crossing 32,325,000 5 1.06 0.88 Current RT Duluth, GA 1.66% 11-May-20JPMCC 2006-CB14 Concord Commons 31,200,000 12 1.16 0.92 90+ RT Concord, NC 1.16% 01-Dec-15WBCMT 2007-C31 Colonial Grande at Promenade 30,400,000 3 1.15 0.94 Current MF Montgomery, AL 0.52% 11-Mar-17CSMC 2007-C4 Sweetwater Crossings 29,000,000 8 1.14 0.93 Current RT National City, CA 1.40% 11-Aug-17GMACC 2006-C1 Southwind 28,125,000 11 1.01 0.86 30+ MF Memphis, TN 1.74% 01-Dec-15CGCMT 2008-C7 Hilton Garden Inn 27,320,000 1 1.04 0.92 Current LO Fairfax, VA 1.48% 06-Jan-18JPMCC 2005-LDP2 Lincoln at Wolfchase 27,080,000 6 1.16 0.93 Current MF Cordova, TN 0.96% 01-Jun-12JPMCC 2005-CB13 Jacaranda Plaza 27,000,000 8 1.21 0.95 Current RT Plantation, FL 1.04% 01-Aug-15CSFB 2005-C6 The Retreat at Fossil Creek 26,300,000 9 1.15 0.92 <30 MF Fort Worth, TX 1.10% 11-Oct-15LBUBS 2008-C1 Memphis Retail Portfolio 25,600,000 11 1.14 0.98 Current RT Various, TN 2.57% 11-Nov-17LBUBS 2006-C6 Sylmar Square 24,900,000 7 1.09 0.93 Current RT Sylmar, CA 0.82% 11-Jul-16MLCFC 2006-4 Colonial Village at Haverhill Apt Homes 22,200,000 5 1.14 0.96 Current MF San Antonio, TX 0.50% 01-Nov-16CD 2006-CD2 Colonnade at Germantown 22,140,000 12 1.16 0.95 <30 MF Germantown, TN 0.73% 01-Dec-15LBUBS 2007-C2 Castle Creek Corporate Park 22,000,000 11 1.01 0.83 Current OF Indianapolis, IN 0.62% 11-Nov-16CSMC 2006-C5 Legacy at Friendly Manor 21,550,000 8 1.09 0.91 Current MF Greensboro, NC 0.63% 11-Aug-16BSCMS 2007-PW18 ANC - Tech park I & II 20,600,000 9 1.11 0.93 Current OF Henderson, NV 0.83% 01-Sep-14CGCMT 2007-C6 Hilton Garden Inn - Detroit 20,000,000 4 1.13 0.93 Current LO Detroit, MI 0.42% 01-Apr-17LBUBS 2007-C6 Washington Square Apartments 20,000,000 7 1.16 0.95 Current MF Lakewood, NJ 0.67% 09-Jul-17


Largest IO Loans Projected to Have a DSCR below 1.0x after Rolling to Amortization


Underwater Performing Loans



0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

24.00%

2000 2001 2002 2003 2004 2005 2006 2007 2008

% o

f O

uts

tandin

g B

al B

elow

1.0

DSCR % Delinquent

% Current

VintageTotal Bal ($Bln)

Below 1.0x DSCR ($Bln)

% Below 1.0x

Below 1.0x and Current ($Bln)

% CurrentBelow 1.0x and

Delinquent ($Bln)% Delinquent

2000 7.63 1.73 22.7% 0.94 54.7% 0.78 45.3%2001 16.61 2.84 17.1% 2.07 72.9% 0.77 27.1%2002 18.80 2.45 13.0% 1.89 77.4% 0.55 22.6%2003 32.41 2.90 8.9% 2.25 77.7% 0.65 22.3%2004 51.21 5.33 10.4% 4.20 78.7% 1.14 21.3%2005 120.23 12.67 10.5% 8.52 67.3% 4.15 32.7%2006 157.95 20.43 12.9% 14.46 70.8% 5.97 29.2%2007 190.01 40.76 21.5% 33.20 81.4% 7.56 18.6%2008 10.63 1.04 9.8% 0.80 76.8% 0.24 23.2%Total 605.49 90.15 14.9% 68.35 75.8% 21.81 24.2%

Notes: Data includes loans from 2000 - 2008 and excludes defeased loans. Used the most recent NCF DSCR figures.Source: Wells Fargo Securities, LLC and Trepp LLC, Inc.

Vintage Trends - Loans with Below 1.0x DSCR

• Among the more recent vintages, the percentage of loans with DSCRs below 1.0x is highest in the 2007 vintage with 21.5%, while the rest of the vintages are in the 10% to 12% range.

• The 2007 vintage also has the highest percentage of loans with DSCRs below 1.0x that are still performing at 81.4%.

• This compares with the 2005 and 2006 vintages in which only 67.3% and 70.8% of the loans with DSCRs below 1.0x are still performing.



Deals with Largest Exposure to Performing Loans with Below 1.0x DSCR

Ticker Deal Bal ($)Deal Loan

CountBelow 1.0x and Current Bal ($)

% Below 1.0x and Current ($Bal)

Below 1.0x and Current (Ln Cnt)

% Below 1.0x and Current (Ln Cnt)

Current Delinq %

MSC 2007-HQ12 1,951,175,600 100 786,712,192 40.32% 14 14.00% 6.41MSC 2007-IQ13 1,616,052,967 176 604,041,729 37.38% 27 15.34% 2.57WBCMT 2007-C30 7,886,387,413 265 2,941,851,087 37.30% 26 9.81% 3.19GCCFC 2007-GG11 2,681,045,109 122 894,192,740 33.35% 23 18.85% 2.21WBCMT 2007-C31 5,811,971,228 191 1,905,432,432 32.78% 28 14.66% 6.84GECMC 2007-C1 3,913,867,539 198 1,169,626,254 29.88% 27 13.64% 6.43MLCFC 2007-5 4,351,902,090 328 1,250,122,687 28.73% 40 12.20% 3.12WBCMT 2007-C32 3,813,081,593 144 1,064,980,833 27.93% 26 18.06% 5.67MLCFC 2007-6 2,131,026,724 146 589,027,412 27.64% 18 12.33% 2.18CSMC 2007-C4 2,062,187,743 212 521,875,831 25.31% 33 15.57% 13.19JPMCC 2007-LD12 2,494,653,394 166 598,986,378 24.01% 30 18.07% 3.99WBCMT 2006-C24 1,628,883,875 116 380,702,130 23.37% 16 13.79% 6.78WBCMT 2007-C33 3,595,706,579 166 835,621,867 23.24% 24 14.46% 3.78CWCI 2007-C3 2,011,274,752 124 458,430,137 22.79% 13 10.48% 2.56CSMC 2007-C3 2,667,913,284 240 602,755,348 22.59% 28 11.67% 8.65CSMC 2007-C2 3,267,881,889 210 731,939,025 22.40% 35 16.67% 3.79LBUBS 2007-C7 3,166,254,465 100 672,501,449 21.24% 14 14.00% 1.31CSMC 2007-C1 3,339,203,560 257 682,150,716 20.43% 37 14.40% 16.37BSCMS 2005-PW10 2,526,360,709 209 507,763,251 20.10% 26 12.44% 3.05JPMCC 2007-LD11 5,377,757,241 265 1,062,239,682 19.75% 43 16.23% 12.63GECMC 2005-C2 1,561,852,010 137 303,985,108 19.46% 18 13.14% 2.08BACM 2007-2 3,147,387,101 180 611,819,954 19.44% 21 11.67% 6.03BACM 2007-3 3,507,933,899 151 671,070,737 19.13% 17 11.26% 11.44CWCI 2007-C2 2,378,733,206 147 449,234,875 18.89% 17 11.56% 3.70LBCMT 2007-C3 3,231,042,654 117 590,931,553 18.29% 20 17.09% 8.43BSCMS 2007-PW15 2,771,024,590 206 504,687,406 18.21% 21 10.19% 4.96LBUBS 2006-C3 1,710,583,114 126 311,281,819 18.20% 20 15.87% 6.57GSMS 2007-GG10 7,535,398,044 201 1,360,656,319 18.06% 22 10.95% 13.14CSMC 2006-C5 3,391,740,966 304 610,426,481 18.00% 51 16.78% 5.41MSC 2005-HQ6 2,640,301,548 183 455,211,088 17.24% 28 15.30% 5.68JPMCC 2007-CB20 2,530,984,981 137 431,289,001 17.04% 20 14.60% 4.29SOVC 2007-C1 891,964,084 230 151,805,586 17.02% 48 20.87% 4.23COMM 2006-C8 3,680,941,691 171 615,641,587 16.73% 24 14.04% 11.38MSC 2007-IQ15 2,036,234,506 134 339,917,806 16.69% 11 8.21% 7.51JPMCC 2007-CB18 3,832,726,979 222 602,149,265 15.71% 30 13.51% 4.96JPMCC 2007-LDPX 5,306,716,244 219 825,418,001 15.55% 34 15.53% 7.15CSMC 2006-C4 4,218,895,985 359 645,799,096 15.31% 70 19.50% 11.46BACM 2007-1 3,093,983,595 157 465,524,388 15.05% 23 14.65% 4.90

Notes: Data excludes defeased loans. Used the most recent NCF DSCR figures. This chart only consists of 2005 - 2008 vintage deals.

Source: Wells Fargo Securities, LLC and Trepp LLC, Inc.


Commercial Real Estate Valuations


Investors aware of declining property fundamentals (increasing vacancies and declining rents) have been requiring higher-risk premiums for investing in commercial properties with higher vacancy rates, putting upward pressure on capitalization rates.

Pricing is competitive for well-leased stabilized trophy assets with strong rent rolls in major markets, and the premium investors are willing to pay for a stabilized asset has increased.

This is producing a two-tiered market in which value losses are accelerated for properties with vacancies and lessened for properties with high occupancy.

Risk Premium Above Long Term AverageAll Core Properties

(Office, Strip Retail, Apartment, Industrial)

2%3%4%5%6%7%8%9%

10%11%12%

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

100150200250300350400450500550

Spre

ad (

bps)

10-Year Treasury All Property CapAll Property Spread Long Term Avg

Source: Real Capital Analytics, Wells Fargo Securities, LLC

Long Term Average Spread 342

bps


Cap Rates Move Lower

Cap Rates have trended down throughout 2010 for the core property types (office, retail, apartment, industrial).

The hotel sector has the greatest proportion of troubled assets among property types, according to Real Capital Analytics, and, because lenders are experiencing such low recovery rates on hotel properties, they are opting to extend or restructure mortgages in an effort to avoid foreclosure.

Only the best hotel properties in the best markets are trading, and investors are focused on the price on a per unit basis. This resulted in volatility in the cap rate data given the currently low revenue in the hotel sector. As the economy improves, look for greater hotel transaction volume in 2011, which should help stabilize cap rates for the sector.

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Apt Hotel Industrial Office Retail Grand Total

Sources: Real Capital Analytics, Inc., Wells Fargo Securities, LLC.


Sales Transaction Volume Picking Up…

Lenders are willing to lend on quality properties with stabilized cash flows and strong tenant rent rolls. Total transaction volume in 2010 eclipsed $120 billion versus $54.5 billion in 2009. Cap rates have been moving steadily downward since 2009 as transaction volume increased.

$0

$20

$40

$60

$80

$100

$120

$140

$160

01Q

1

01Q

4

02Q

3

03Q

2

04Q

1

04Q

4

05Q

3

06Q

2

07Q

1

07Q

4

08Q

3

09Q

2

10Q

1

10Q

4

Bill

ions

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

Total Transaction Volume Cap Rate

Sources: Real Capital Analytics, Inc., Wells Fargo Securities, LLC.


We expect property pricing for the major property types to continue to bounce around through the first half of 2011, with the greatest drop in pricing behind us at this point. Losses may be putting in a bottom this year.

We anticipate it will take about 12-15 months (2011/2012) before property revenues and cap rates stabilize, preventing further declines in value.

Strong investor interest in stabilized core assets has kept pricing competitive, and cap rates for these products are actually compressing, limiting further declines in value. Value-add (higher vacancy) properties are not attracting a lot of interest at this point, but as the economy improves in 2011 more investors will likely look outside of the competitively priced major markets and at assets that are troubled.

Apartment pricing is up 15.5% from a year ago, according to CPPI, and may very well be in full pricing recovery mode now.

Property Values Projected to Ultimately Decline 32-40%

8090

100110120130140150160170180190200

2000-4

2001-2

2001-4

2002-2

2002-4

2003-2

2003-4

2004-2

2004-4

2005-2

2005-4

2006-2

2006-4

2007-2

2007-4

2008-2

2008-4

2009-2

2009-4

2010-2

2011F

Moody's

CPPI

Apt Ind Off RetSource: M oody's CPPI, M IT Center for Real Estate, Real Capital Analytics, Wells Fargo Securities, LLC.

Index High Date Q3 2010Current Decline 2011F 2012F

Delta from High to 2012F

Delta YTD to 2012F

Apt 194.5 Q1 2007 135.9 -30.2% 137.5 140.9 -27.5% 2.61%

Ind 192.5 Q4 2007 119.2 -38.1% 119.0 126.9 -34.1% 4.02%

Off 177.6 Q2 2007 118.2 -33.4% 118.0 120.6 -32.1% 1.33%

Ret 195.2 Q3 2007 125.3 -35.8% 123.9 125.1 -35.9% -0.13%

Sources: Moody's CPPI, MIT Center for Real Estate, Real Capital Analytics, Wells Fargo Securities, LLC.

Moody's CPPI Quarterly Index by Prop Type WFC Forecast


Property Market Outlook


• Leasing velocity slowed across all property types. Rising vacancies have forced landlords to increase concessions, thereby reducing effective revenue. It is likely to remain a tenant’smarket for the next six months, but vacancy rates are likely nearing their peak.

• Apartment sector revenue should outperform that of the office, industrial and retail sectors. Continued high unemployment will likely slow absorption, but the housing downturn and increased underwriting standards for home mortgages should keep more people in rentals. Echo Boomers (currently aged 15-28) will likely generate long-term demand for all types of housing.

• 2010 will most likely represent the bottom in terms of property fundamentals.

• Markets with a forecast for negative near-term revenue growth showed improvement at 63 markets (Q4 2010) from 260 markets (Q4 2009). The volatile hotel sector should experiencegrowing revenue as it snaps back from the lows at the end of 2009. The short, overnight lease term gives operators the ability to quickly adjust rates as the economy improves.

Our Property Forecast Anticipates Improvement Through 2012

Overall OverallSector Rating Declining Stable Growing Rating Declining Stable GrowingOffice Watch 54 0 0 Stable 18 36 0Retail (SC) Decline 52 0 0 Decline 42 10 0Apartment Decline 54 0 0 Stable 0 51 3Industrial Decline 50 0 0 Stable 3 37 10Hotel Watch 50 0 0 Growth 0 4 46

Totals 260 0 0 63 138 59Note: We added 50 Hotel Markets to our coverage universe Q3 2009.Source: Wells Fargo Securities, LLC

with Revenue with Revenue

Previous Forecast (Q4 2009) Current Forecast (Q4 2010)No. of Metros No. of Metros


Retail: The poor financial health of the consumer will likely lead revenues lower through 2011, in our view. Consumers are boxed in by tighter credit, falling home values and high unemployment.

Office: Sublease space is typically offered at a discount to available direct space and is elevated and will likely keep downward pressure on direct space rents. Underutilized space will likely need to be absorbed before meaningful absorption gains significantly tighten the vacancy rate.

Warehouse: Demand for goods slowly returning and trade flows with Asia have been improving with container volume increasing in West Coast ports.

Apartment: Lack of confidence in the housing market and higher qualifying requirements for home mortgages may keep more people in the renters’ pool. We are forecasting stable revenue through 2011, and the apartment sector should continue to outperform the other three core sectors.

Hotel: Hotel should post strong improvement in 2010 over 2009.

Property Market Outlook – Revenue Declines Lessening

2010F 2011F 2012F Current Trough Vac Trough YearApartment Stable 0% 1.2% 1.6% 2.6% 7.0% 9.0% 2009Industrial Stable 6% -4.8% -0.1% 6.6% 13.2% 13.2% 2010

Office Stable 33% -4.0% -0.1% 2.1% 17.6% 17.6% 2010Retail (strip centers) Decline 81% -3.1% -1.1% 0.9% 10.7% 0.7% 2010Hotel* Growth 0% 5.0% 4.3% 8.0% 39.1% 42.0% 2009

Note: *Hotel based on RevPAR change.

Source: REIS, Inc., Property & Portfolio Research, Smith Travel Research, Real Capital Analytics, Inc. and Wells Fargo Securities, LLC.

VacancySector

Market ScoreQ4 2010-2012

% US Metrosw/ Decline orWatch Scores

Annual Change inEffective Revenue


Effective Revenue Trends by Property Type…The Worst Is Behind Us

The severity of property revenue declines has likely passed with the close of 2009; however, fundamentals remain weak, particularly for the office and retail sectors.

The apartment sector should continue to lead the recovery in 2011. Tougher requirements for a home mortgage, the echo boomers (born 1981-2000) entering adulthood, and the likelihood for economic recovery leading to job growth should support demand for apartments over the next several years.

-15%

-10%

-5%

0%

5%

10%

15%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010F

2011F

2012F

Apartment Eff Rev Chng Office Eff Rev Chng Retail Eff Rev Chng Industrial Eff Rev Chng

Source: Reis, Inc., Property & Portfolio Research, Inc., Wells Fargo Securities, LLC.


Limited Supply Headed into Downturn Eases Road to Recovery

Completions as a percentage of inventory were rather light heading into this recession compared to past cycles thanks to rising commodity prices through this past decade, which made development costs higher.

Demand destruction has resulted in higher vacancies, but at least the deterioration in fundamentals is not likely to be exacerbated by heavy new levels of supply in the pipeline. As recovery begins, fundamentals may improve at a quickened pace.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010F

2012F

Com

ple

tions

as

% o

f In

vento

ry

Apt Off Ret Ind AggregateSource: REIS, Inc., Property & Portfo lio Research, Wells Fargo Securities, LLC.

Avg. '85-'89=5.0%

Avg. '97-'01=2.4%

Avg. '04-'08=1.5%

Avg. '10F-'12F=0.63%


Sublet Availabilities Weigh on Office Market’s Recovery…

14%14%15%15%14%

13%9%9%

11%

15%

21%26%

0%

5%

10%

15%

20%

25%

30%2002

2003

2004

2005

2006

2007

2008

Q2 '09

2009

Q1 2

010

Q2 2

010

Q3 2

010

National Office Sublet Availabilities as % of Total Vacant StockSource: Reis, Inc. Wells Fargo Securities, LLC

0%

5%

10%

15%

20%

25%

30%

35%

Ric

hmon

dB

osto

n

CN

JN

ew Y

ork

Ora

nge

Cou

nty

NN

J

Orla

ndo

Ft W

orth

Nas

hvill

eS

an F

ranc

isco

D.C

.

San

Die

goS

an J

ose

Ft L

aude

rdal

eP

alm

Bea

ch

Chi

cago

Los

Ang

eles

Sea

ttle

Long

Isla

nd

Den

ver

Sub

MD

Office Sublet Availabilities as % of Vacant Stock U.S. AverageSource: Reis, Inc., Wells Fargo Securities, LLC.

Q3 2010

Markets with higher levels of sublet availabilities could experience a delayed recovery.

New York has the highest sublet availability rate at 29%, but this is down from 32% a few quarters back.

National sublet availabilities leveled off at around 15% and now are slowly starting to decline, remaining stable at 14% over the past two quarters.


55

Based on 225 SF per employee, job losses of 818,000 would suggest total unoccupied space of 184.050 million SF; but actual absorption losses in the U.S. office market since 2008 total 136.65 million SF.

The amount of square footage per building occupant has increased to 435 SF in 2009, up from 396 SF in 2007, according to International Facility Management Assoc. (IFMA), not because employers are allocating more space per employee, but because layoffs have left fewer workers occupying the same amount of space.

Office-Using Employment Losses Lead to Underutilized Space

National Office-Using Employment

26500270002750028000285002900029500

Jan-0

8

Mar-

08

May-0

8

Jul-

08

Sep-0

8

Nov-0

8

Jan-0

9

Mar-

09

May-0

9

Jul-

09

Sep-0

9

Nov-0

9

Jan-1

0

Mar-

10

May-1

0

Jul-

10

Sep-1

0

Nov-1

0

Em

plo

yees

(thousa

nds)

Source: Bureau of Labor Statistics, Wells Fargo Securities, LLC.

Note: Sectors represented are professional & business services, information, and f inancial act ivit ies. Data is seasonally adjusted.

down 818,000 jobs from Jan-08 to Nov-10.


56

Metros with a better fundamental outlook include older established metros like D.C., Baltimore, New York and Philadelphia.

Nashville and Pittsburgh have remained rather stable throughout the recession with the vacancy rate remaining range bound. Volatile Austin jumped to the top 10 thanks to a more stable revenue outlook as vacancies tighten, after a rough prior 12 months.

Higher vacancies in Phoenix, Miami, Chicago (weak suburbs), Denver, and weaker leasing trends in Detroit, Inland Empire and South Florida place those metros at the bottom of our forecast.

Office Sector Top 10/ Bottom 10

2010Q4-2012 Avg Current 4Q11 F 4Q12 F 2011 F 2012 F 2010Q2 2010Q3

Growth - 4 New York 2.5% 11.6% 10.6% 10.0% -3.9% 2.2% 3.61% 3.26%

Pittsburgh 2.3% 16.7% 16.6% 16.4% -4.0% 2.0% 10.08% 13.19%

District of Columbia 2.1% 9.8% 9.6% 9.4% -0.9% 1.9% 1.99% 2.83%

Charlotte 2.0% 15.4% 15.0% 14.3% 0.0% 3.1% 9.54% 9.20%

Austin 2.0% 21.4% 20.3% 19.3% 1.3% 3.4% 8.32% 10.57%

Richmond 2.0% 16.2% 15.3% 14.3% -2.2% 1.4% 6.91% 9.11%

Raleigh-Durham 1.9% 16.9% 16.6% 16.1% 0.1% 3.0% 6.99% 8.18%

Nashville 1.4% 12.4% 12.2% 11.7% -1.0% 2.8% 2.51% 5.65%

San Antonio 1.2% 18.5% 17.4% 17.1% 0.7% 2.9% 3.88% 2.02%

Baltimore 1.1% 16.2% 16.0% 15.6% -3.1% 0.4% 5.38% 5.57%

US Metro Total 0.7% 17.4% 17.5% 16.9% -2.4% 2.5% 8.04% 8.61%

Sacramento -0.4% 20.2% 21.1% 20.6% -3.4% 3.3% 4.77% 7.04%

Kansas City -0.5% 17.0% 17.2% 17.5% -3.5% 2.4% 6.57% 6.68%

Detroit -0.6% 26.7% 26.9% 26.7% -4.0% 1.8% 14.52% 15.98%

Phoenix -0.6% 26.4% 26.3% 25.5% -2.8% 1.8% 17.34% 19.16%

Miami -0.6% 15.0% 15.5% 15.7% -1.7% 3.7% 9.81% 9.95%

Tampa-St. Petersburg -0.7% 21.4% 21.6% 21.1% -0.4% 3.6% 11.77% 16.17%

Fairfield County -1.0% 19.2% 20.0% 19.7% -3.6% 2.2% 8.68% 11.35%

Denver -1.0% 20.6% 21.1% 20.8% -2.6% 2.4% 11.61% 11.40%

Hartford -1.3% 23.7% 25.1% 24.0% -3.2% 1.9% 9.83% 10.07%

Inland Empire -1.5% 25.1% 26.4% 25.1% -1.5% 5.2% 6.90% 9.97%

MARKET SCORE

Decline-2

CMBS LOAN

DELINQUENCIESMETROSAnnual Revenue

Change VACANCYEMPLOYMENT

GROWTH

Stable-3

Sources: Among the sources considered are Bureau of Labor Statistics, Intex Solutions, Inc., Property & Portfolio Research, Dodge Pipeline, Real Capital Analytics, Marcus & Millichap, Reis, Inc., National Real Estate Index, Grubb & Ellis, CushmanWakefield, Colliers, ABR, Economy.com, and CB Richard Ellis. Final conclusions by Wells Fargo Securities, LLC.


Property Markets: Office Supply/Demand Summary

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010F

2011F

2012F

National Office Supply / Demand Summary

000's

SF

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Supply (left scale) Demand (left scale) Vacancy Rate (right scale)

Source: Reis, Inc. and Wells Fargo Securities, LLC.


58

Texas metros that largely avoided the worst of the housing crisis/job losses populate the top of our forecast, along with San Francisco (high median incomes/ high barrier to entry).

Markets that experienced steep home price declines – Las Vegas, Florida Metros, Detroit, Phoenix –populate the bottom of our retail forecast.

Retail Sector – Top 10 / Bottom 10


Pittsburgh 1.4% 10.3% 10.2% 9.5% -4.0% 2.0% 4.71% 5.16%

Raleigh-Durham 0.9% 9.6% 10.0% 9.8% 0.1% 3.0% 4.46% 3.87%

Northern New Jersey 0.6% 6.0% 6.5% 6.4% -3.6% 1.8% 5.06% 4.09%

Philadelphia 0.5% 9.4% 9.2% 9.3% -3.6% 2.1% 3.55% 4.05%

San Francisco 0.5% 4.0% 4.3% 4.2% -5.9% 3.0% 3.50% 4.81%

Austin 0.4% 8.4% 9.6% 9.2% 1.3% 3.4% 6.25% 6.97%

Columbus 0.2% 15.7% 16.1% 16.2% -1.6% 2.5% 9.12% 6.94%

Cleveland 0.2% 14.2% 15.1% 14.1% -3.6% 2.1% 7.74% 7.89%

Fort Worth 0.2% 14.0% 13.8% 14.5% 0.8% 3.3% 7.69% 6.53%

Portland 0.1% 7.3% 7.9% 8.3% -1.9% 3.0% 4.68% 3.39%

US Metro Total -0.4% 10.6% 11.2% 11.0% -2.3% 2.5% 6.76% 6.91%

Fort Lauderdale -0.8% 10.6% 11.1% 11.1% -1.1% 3.6% 5.99% 7.13%

San Antonio -0.8% 12.2% 12.7% 13.4% 0.7% 2.9% 2.05% 3.42%

Sacramento -0.9% 12.2% 13.2% 13.1% -3.4% 3.3% 6.39% 6.20%

Suburban Maryland -0.9% 8.9% 9.5% 9.5% -1.3% 1.6% 1.65% 1.61%

Inland Empire -1.0% 10.0% 10.4% 10.2% -1.5% 5.2% 11.56% 11.12%

Memphis -1.1% 11.8% 12.2% 12.2% -2.1% 3.0% 11.59% 7.79%

Orlando -1.1% 13.0% 14.0% 14.1% 0.6% 3.3% 16.76% 15.73%

Atlanta -1.3% 14.2% 15.3% 15.2% 0.7% 3.7% 9.13% 9.62%

Tampa-St. Petersburg -1.4% 11.4% 12.2% 12.4% -0.4% 3.6% 7.75% 7.13%

Las Vegas -2.0% 12.5% 13.0% 12.7% 3.8% 3.4% 17.15% 17.65%

Decline-2

MARKET SCORE

CMBS LOAN



GROWTH

Stable-3



Property Markets: Retail Supply/Demand Summary

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010F

2011F

2012F

000's

SF

0%

2%

4%

6%

8%

10%

12%



Retail Supply/Demand Summary


60

The Seattle and Orange County markets should benefit from increasing demand as shippers look for alternatives to L.A./Long Beach ports. Metros with increasing populations such as Charlotte and Raleigh should benefit from favorable demographics, while Jacksonville and Miami should benefit from Latin American growth and the future widening of the Panama Canal.

The Midwest remains weak. Palm Beach remains more local and reliant on a healthy housing market. San Francisco gets stiff competition from the cheaper Oakland market.

Warehouse Sector – Top 10 / Bottom 10


Seattle WA 4.4% 11.2% 10.4% 6.0% -4.1% 3.2% 4.62% 3.55%Memphis TN 4.3% 19.8% 19.2% 14.4% -2.1% 3.0% 16.22% 21.63%Baltimore MD 3.5% 14.1% 15.5% 9.5% -3.1% 0.4% 5.70% 5.83%Orange County CA 3.2% 11.5% 11.3% 6.8% -4.1% 2.9% 2.29% 2.33%Charlotte NC 3.2% 17.8% 15.7% 12.6% 0.0% 3.1% 0.00% 2.82%San Antonio TX 3.1% 14.1% 14.6% 9.1% -3.1% 2.5% 4.77% 4.77%Jacksonville FL 3.1% 14.9% 12.8% 10.4% -0.8% 3.8% 12.59% 8.10%Raleigh NC 3.0% 17.7% 17.2% 13.7% 0.1% 3.0% 5.08% 5.08%Miami FL 3.0% 14.6% 13.1% 10.7% -1.7% 3.7% 6.66% 10.70%Denver CO 2.7% 6.1% 6.9% 3.5% -2.6% 2.4% 2.38% 2.56%US Metro Total 1.6% 13.2% 12.9% 9.5% -2.4% 2.5% 6.00% 6.16%Cleveland OH 0.7% 12.4% 12.6% 10.4% -3.6% 2.1% 3.98% 0.00%Detroit MI 0.7% 15.8% 14.8% 13.0% -4.0% 1.8% 26.99% 32.17%Chicago IL 0.5% 14.6% 14.9% 9.9% -4.0% 2.7% 10.59% 7.60%Hartford CT 0.4% 14.3% 12.4% 11.9% -3.2% 1.9% 10.22% 5.11%Stamford CT 0.3% 15.7% 13.9% 14.7% -0.9% 2.4% 1.19% 1.22%San Jose CA 0.3% 9.9% 9.4% 7.1% -5.9% 3.0% 0.00% 0.00%Tampa FL 0.1% 13.7% 15.1% 10.0% -0.4% 3.6% 7.92% 8.57%North - Central New Jersey NJ -0.1% 17.7% 17.9% 14.5% -3.2% 1.7% 3.65% 5.39%San Francisco CA -0.3% 10.8% 11.6% 8.8% -3.6% 2.0% 0.98% 1.69%Palm Beach County FL -0.5% 12.8% 13.2% 9.3% -0.9% 3.7% 17.75% 16.46%

Growth - 4

Decline-2

Stable - 3

CMBS LOANDELINQUENCIESMETROS

Annual Revenue Change VACANCY

EMPLOYMENT GROWTHMARKET SCORE



Property Markets: Warehouse Supply/Demand Summary

-150

-100

-50

0

50

100

150

2001990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010F

2011F

2012F

000's

SF

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Supply Demand Vacancy

Source: Property & Portfolio Research, Inc. and Wells Fargo Securities, LLC.

Warehouse Supply/Demand Summary


62

Increasing port traffic signals are increasing the demand for warehouse and distributionspace.

Total traffic for West Coast ports is up 12.7% in October 2010 versus October 2009 and is up 15.1% YTD October 2010 versus the same period a year ago.

Warehouse Sector

West Coast port traffic increasing…

A harbinger of increasing demand for warehouse

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Jan-0

8

Mar-

08

May-0

8

Jul-

08

Sep-0

8

Nov-0

8

Jan-0

9

Mar-

09

May-0

9

Jul-

09

Sep-0

9

Nov-0

9

Jan-1

0

Mar-

10

May-1

0

Jul-

10

Sep-1

0

West Coast Imports West Coast Exports West Coast TotalSource: Bloomberg, LP., Wells Fargo Securit ies, LLC.


63

Apartment Sector – Top 10 / Bottom 10

Top markets of New York, Long Island, Northern New Jersey, D.C., San Jose, and Boston have higher median home prices, with many renting by necessity. Job growth is solid in the D.C. area. Suburban (northern) Virginia job growth is improving.

Growth metros that attract younger populations such as Denver, Austin, Charlotte, and Raleigh-Durham should also perform well over the forecast.

Midwest metros offering fewer job opportunities for echo boomers lag the forecast.


New York 4.2% 3.6% 3.0% 2.4% -3.9% 2.2% 2.85% 2.61%

Charlotte 3.4% 8.9% 7.8% 6.6% 0.0% 3.1% 5.54% 8.70%

District of Columbia 3.3% 5.7% 4.7% 4.5% -0.9% 1.9% 3.33% 3.45%

Raleigh-Durham 3.1% 7.1% 6.3% 5.8% 0.1% 3.0% 6.22% 5.42%

Chicago 2.8% 5.9% 5.5% 5.2% -4.0% 2.7% 6.68% 7.29%

Phoenix 2.8% 10.3% 9.6% 9.1% -2.8% 1.8% 22.67% 21.88%

Richmond 2.6% 7.7% 6.8% 6.7% -2.2% 1.4% 6.44% 8.67%

Long Island 2.6% 3.9% 3.3% 3.0% -3.3% 2.0% 2.20% 1.10%

Las Vegas 2.5% 9.9% 8.3% 7.5% 3.8% 3.4% 23.37% 26.96%

San Jose 2.5% 3.9% 3.7% 3.6% -4.1% 3.2% 1.58% 0.00%

US Metro Total 2.2% 7.0% 6.5% 6.1% -2.4% 2.5% 8.51% 8.41%

Fairfield County 1.6% 5.2% 4.9% 4.5% -3.6% 2.2% 5.88% 6.25%

Norfolk 1.5% 5.7% 5.4% 5.1% -1.6% 1.6% 3.30% 3.30%

Milwaukee 1.5% 4.8% 4.8% 4.3% -4.4% 2.4% 0.00% 0.00%

Memphis 1.5% 12.0% 10.7% 9.8% -2.1% 3.0% 22.38% 17.78%

Indianapolis 1.4% 8.3% 8.6% 8.1% -1.7% 1.7% 15.68% 13.41%

Inland Empire 1.3% 7.1% 6.4% 6.0% -1.5% 5.2% 11.54% 12.31%

Orlando 1.1% 9.8% 9.2% 8.7% 0.6% 3.3% 15.91% 18.84%

Hartford 0.9% 5.0% 5.2% 4.4% -3.2% 1.9% 18.66% 19.96%

Cleveland 0.6% 6.1% 6.1% 5.8% -3.6% 2.1% 18.37% 18.18%

Cincinnati 0.3% 6.9% 7.0% 6.9% -2.0% 1.8% 10.14% 8.82%

Stable - 3

MARKET SCORE

CMBS LOAN



GROWTH

Growth - 4

Sources: Among the sources considered are Bureau of Labor Statistics, Intex Solutions, Inc., Property & Portfolio Research, Dodge Pipeline, Real Capital Analytics, Marcus & Millichap, Torto Wheaton Research, Reis, Inc., National Real Estate Index, Grubb & Ellis, CushmanWakefield, Colliers, ABR, Economy.com, and CB Richard Ellis. Final conclusions by Wells Fargo Securities, LLC.


Property Markets: Apartment Supply/Demand Summary

-50

0

50

100

150

200

250

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010F

2011F

2012F

National Apartment Supply / Demand Summary

Units

(000's

)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%




65

Echo boomers aged 35-44 are projected to eclipse the number of baby boomers when they were the same age by more than 5.9 million driving demand for housing

Recession wiped out wealth that might have gone to defray educational costs of children. Larger student loans could delay transition from renter to homeowner.

Apartment Sector Home prices more affordable now…

100

110

120

130

140

150

160

170

180

190

Q1 2

002

Q3 2

002

Q1 2

003

Q3 2

003

Q1 2

004

Q3 2

004

Q1 2

005

Q3 2

005

Q1 2

006

Q3 2

006

Q1 2

007

Q3 2

007

Q1 2

008

Q3 2

008

Q1 2

009

Q3 2

009

Q1 2

010

Q3 2

010

% M

edia

n I

nco

me v

s Q

ualif

yin

g I

nco

me

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

Pre

miu

m t

o B

uy v

s R

ent

Affordability Index Premium to Buy vs RentSource: NAR, REIS, Wells Fargo Securities, LLC

yet the homeownership rate continues to decline.

Lack of confidence in the housing market is pushing more people to rentals.

Renting means freedom from a mortgage and the mobility to pursue job opportunities in other areas.

66.5%

67.0%

67.5%

68.0%

68.5%

69.0%

Q3'00 Q3'01 Q3'02 Q3'03 Q3'04 Q3'05 Q3'06 Q3'07 Q3'08 Q3'09 Q3'10Source: U.S. Census Bureau, CNNM oney.com, Wells Fargo Securities, LLC.

Q3 '10 rate of 66.9% lowest since Q3 '99

Drop since peak in 2005 represents nearly 3 million fewer homeowners now


66

Property Markets: Hotel Top and Bottom 10 Metros

With no markets forecasted to experience declining revenue through Q4 2011, the hotel sector appears firmly in recovery mode.

Major cities should perform well with stronger recovery likely in select Florida metros and Las Vegas, which traditionally benefit from increased business meetings and convention traffic.

2010Q3-2011Q4 Avg 08:3 09:3 10:3 09:3 10:3

Palm Beach County FL 8.8% 62.4% 57.0% 61.4% 493 366

Orlando FL 8.0% 66.5% 60.2% 61.5% 1,117 3,450

Las Vegas NV 6.6% 67.8% 57.6% 58.6% 3,906 7,562

Tampa FL 6.6% 57.9% 52.2% 54.6% 1,273 783

Minneapolis MN 6.5% 63.7% 55.6% 59.6% 861 56

Chicago IL 6.0% 64.7% 56.8% 60.6% 3,262 -535

Pittsburgh PA 5.9% 63.7% 61.6% 65.4% -289 1,049

Baltimore MD 5.4% 62.0% 58.8% 61.0% 1,950 586

Orange County CA 5.4% 69.9% 63.7% 67.3% 529 500

Boston MA 5.3% 67.7% 62.0% 67.8% 459 75

US Metro Total 4.8% 65.2% 58.4% 60.9% 77,529 53,158

Austin TX 3.4% 67.4% 61.7% 62.3% 554 1418

St. Louis IL 3.3% 58.7% 54.5% 56.4% 1545 1228

Philadelphia PA 2.9% 65.8% 61.4% 64.0% 610 662

Jacksonville FL 2.9% 59.8% 52.9% 55.0% 1397 1356

Houston TX 2.8% 64.8% 60.3% 54.5% 1658 4464

Milwaukee WI 2.7% 62.3% 52.6% 56.9% 520 809

Indianapolis IN 2.5% 58.2% 52.8% 53.9% 1285 969

Stamford CT 1.9% 59.7% 52.6% 55.5% 1007 220

Atlanta GA 1.4% 60.1% 52.7% 56.2% 889 1717

Cincinnati OH 0.0% 55.9% 51.0% 51.8% 411 426

Stable-3

Growth-4

High Growth-5

MARKET SCORE METROSAnnualized Change in

RevPAR Occupancy RateSupply Growth

(Rooms)

Sources: Among the sources considered are Bureau of Labor Statistics, Property & Portfolio Research, Smith Travel Research, Dodge Pipeline, Real Capital Analytics, Marcus & Millichap, Reis, Inc., National Real Estate Index, Grubb & Ellis, CushmanWakefield, Colliers, ABR, Economy.com, and CB Richard Ellis. Final conclusions by Wells Fargo Securities, LLC.


Property Markets: Hotel Supply/Demand Summary

Developers poorly timed the current market, with projects coming on line at a time whendemand has receded. Given the drastic declines in RevPAR in 2009, our forecast through 2011 shows strong improvement across the majority of markets. As the economy recovers, hotels should benefit with increasing occupancies.

Domestic airline traffic has been up in eight out of nine months through September 2010 versus the same period a year ago, according to Bureau of Transportation Statistics.

-150

-100

-50

0

50

100

150

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010F

2011F

National Hotel Supply / Demand Summary

Room

s

50%

55%

60%

65%

70%

75%

Occ

upancy

Supply (left scale) Demand (left scale) Occupancy Rate (right scale)

Source: Property & Portfolio Research, Inc. and Wells Fargo Securities, LLC.


CMBS Relative Value


Relative Value: Time for DUS to Shine

As 2005 vintage superseniors tightened 120 bps in 2010, DUS spreads widened 32 bps.

DUS registers a 107-bp spread to Treasuries at a time when spreads across other asset classes have compressed.

The 4.4% Yield on DUS Bonds Exceeds the Return on 2007 Dupers

Fannie Mae DUS 10/9.5 Sat the 2010 Spread Rally Out DUS: The Guaranty Hasn't Been This Cheap in Some Time

0

200

400

600

800

1000

1200

12/0

8

2/0

9

4/0

9

6/0

9

8/0

9

10/0

9

12/0

9

2/1

0

4/1

0

6/1

0

8/1

0

10/1

0

12

/10

bp

s to

sw

aps

FNMA DUS

2005 Vintage 10YR AAA

Weak 2007 Supersenior 10YR

Source: Wells Fargo Securities, LLC.

0

200

400

600

800

1000

1200

10/0

8

12/0

8

2/0

9

4/0

9

6/0

9

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9

12/0

9

2/1

0

4/1

0

6/1

0

8/1

0

10/1

0

12/1

0

bps

2005 Supersenior/FNMA DUS Spread Differential

Source: Wells Fargo Securities, LLC.


Relative Value: 2007 Dupers Now Rich to Corporates

As seasoning CMBS bonds roll down a steep Treasury curve, nominal yields on 2007 dupers are now inside investment-grade corporates. CMBS merit a yield premium to reflect uncertainty in the timing of cash flows as well as a liquidity concession versus corporates.

Weak credit 2007 dupers are now 48 bps inside the BBB REIT Index.

At a 4.1% yield 2007 Dupers Are Being All They Can Be

CMBS Superseniors versus Corporate Indices CMBS Superseniors versus Corporate Indices

2%

4%

6%

8%

10%

12%

14%

16%

1/07

4/07

7/0

7

10/0

7

1/0

8

4/08

7/0

8

10/0

8

1/0

9

4/0

9

7/09

10/0

9

1/1

0

4/1

0

7/1

0

10/1

0

1/1

1

10-Yr '05 CMBS Super Sr. Yield10-Yr '07 Super Sr. YieldBBB REIT Index Yield

Source: Bloomberg LP and Wells Fargo Securities, LLC.

3%

5%

7%

9%

11%

13%

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19%

1/0

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11/

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1/10

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1/1

1

10-Yr '07 Super Sr. Yield

Investment-Grade Index (Avg. YTM)

High-Yield Index (Avg. YTM)

Source: Bloomberg LP and Wells Fargo Securities, LLC.

'07 Duper IG Correlation in 2010: 0.82'07 Duper HY Correlation in 2010: 0.88


Yields: Corporates Versus CMBS

CMBS Yields versus Corporates

1/20/2011 9/15/2010 6/9/2010 3/22/2010 1/13/2010

5-Yr. Corporates Composite (%) AA 2.87 2.41 3.08 3.25 3.31

A 3.13 2.81 3.45 3.73 3.83BBB 3.76 3.52 4.09 4.51 4.77

BB 5.13 5.55 6.04 6.22 6.56B 6.18 6.69 7.40 7.42 7.55

Finance BB 5.54 6.84 6.78 6.73 7.33

Industrials BB 4.81 5.12 5.98 5.97 6.17Retail BB 5.37 5.51 5.49 6.2 6.43

CMBS (loss adjusted) A2 2.95 3.00 3.93 3.8 4.3

A4 4.29 5.09 7.26 7.1 7.8AM 5.7–7.0 5.9–8.6 8.99 7.3–13 8.0–10.0

CMBS (With 2-Yr Extension) A2 2.97 4.20 4.01 4.3 4.8

A4 4.27 5.25 7.26 7.1 7.5AM 5.5–6.9 5.7–8.1 8–10 0–10 7.5–9.5

Note: CMBS runs assume 3 CDR, 50% severity and a 12-mo. recovery lag. Source: Bloomberg Fair Market Value Curves, Bloomberg LP and Wells Fargo Securities, LLC.


New Issue: Pipeline

• As much as $13 billion is possible for the primary market in Q1—although this is probably at the high side.

• We forecast 2011 issuance of $50 billion.

Amount

FIRST QUARTER Lead Manager Deal Type Rate Type ($Mil.)

Deutsche Bank, UBS, Ladder Deutsche Bank, UBS Multiple borrower Fixed $2,900Morgan Stanley, Bank of America Morgan Stanley, BofA Multiple borrower Fixed 1,800Wells Fargo, RBS, Basis Capital, Natixis Wells Fargo, RBS Multiple borrower Fixed 1,700J.P. Morgan J.P. Morgan Multiple borrower Fixed 1,500Hines partnership (California office portfolio) J.P. Morgan Single borrower Fixed 1,500Genesis Healthcare/JER (healthcare portfolio) Citigroup, BofA, Barclays Single borrower Fixed 1,500Goldman Sachs Goldman Multiple borrower Fixed 1,250Cerberus Partners/Kyo-ya (hotel portfolio) Goldman Single borrower Fixed 900

$13,050Source: Commercial Mortgage Alert.


New Issue: Recent Pricing

JPMCC 2010-C2 COMM 2010-C1 WFCM 2010-C1Pool Size/WAC 1,101.3mm / 5.62% 856.6mm / 6.03% 735.9mm / 5.71%Price Date 10/7/10 10/20/10 10/28/10Loan Sellers JP Morgan DB / Ladder Capital / Natixis BofAML / WFB / BasisMaster/Special Midland Loan Services, Inc Wells Fargo / Midland Wells Fargo Bank NA / MidlandB-Buyer H/2 Capital BlackRock RialtoOperating Advisor

UW Fitch S&P UW Moody's Fitch UW Moody's

DSCR 1.66x 1.32x 1.34x 1.71x 1.25x 1.40x 1.82x 1.31xLTV 58.9% 82.6% 81.7% 58.8% 83.1% 82.8% 58.3% 80.6%Debt Yield 11.6% 11.0% 11.1% 12.2% 11.4% 11.6% 12.8% 11.5%Total Debt LTV 60.9% 85.4% 84.5% 61.4% 86.8% 83.3% 60.5% 83.9%Total Debt DY 11.2% 10.6% 10.7% 11.7% 11.1% 11.1% 12.3% 11.0%

C/E WAL Px (S+) DY C/E WAL Px (S+) DY C/E WAL Px (S+)Long AAA 18.25% 9.79 150 14.20% 17.38% 9.64 140 14.81% 17.75% 9.71 135AA 14.88% 9.89 250 13.64% 14.50% 9.90 240 14.31% 14.75% 9.91 220A 10.00% 9.91 320 12.90% 11.13% 9.92 310 13.77% 10.50% 9.91 290A- - - - - - - - - - - -BBB+ 7.00% 9.97 400 12.49% - - - - - - -BBB - - - - - - - - 5.88% 9.93 400BBB- 5.00% 9.97 NAV 12.22% 5.00% 9.92 425 12.88% 4.00% 9.99 Not Off.BB 3.50% 9.97 NAV 12.03% 3.50% 9.92 NAV 12.68% - - -B+ - - - - - - - - - - -B 2.25% 9.97 NAV 11.88% - - - - 2.00% 9.99 Not Off.B- 2.00% 9.97 NAV 11.85% 2.00% 9.92 NAV 12.49% - - -NR 0.00% 9.97 NAV 11.61% 0.00% 9.92 NAV 12.24% 0.00% 9.99 Not Off.

Pentalpha Surveillance LLC (Sr. Trust Adv.) — Pentalpha (Sr. Trust Adv.)

Source: Wells Fargo Securities, LLC


The Case for Seasoned Credit

Sample Size Wtd. Avg.Vintage (Loan Count) Debt Yield2001 2,285 16.2%2002 2,203 16.5%2003 3,380 14.5%2004 3,952 15.3%2005 7,591 11.1%2006 9,056 10.4%2007 7,399 9.3%2008 132 9.7%

Notes: NOI based on annualized available 2009 financials; excludes defeased loans.Source: Bloomberg LP and Wells Fargo Securities, LLC.

Supportable Loan Amount Inputs Base Stress

Required DSCR 1.25 1.30Assumed Loan Term 30 30Assumed Coupon 6.00% 7.50%Mortgage Constant 7.26% 8.47%

Base Case Stress CaseSupportable SupportableLoan Amount Loan Amount

Sample Size vs Mortgage vs MortgageVintage (Loan Count) Balance Balance2001 2,285 1.78 1.472002 2,203 1.81 1.502003 3,380 1.60 1.322004 3,952 1.68 1.392005 7,591 1.22 1.012006 9,056 1.15 0.952007 7,399 1.02 0.842008 132 1.07 0.88

Notes: NOI based on annualized available 2009 financials; excludes defeased loans.Source: Bloomberg LP and Wells Fargo Securities, LLC.

Current Debt Yield by Vintage

Supportable Loan Amount by Vintage

In our view, seasoned CMBS credit as an investment offers a spread advantage to comparable short-duration products without the assumption of undue credit risk.

On average, 2001–2004 collateral shows debt yields of 14.5%–16.5% based on in-place cash flow. This indicates these loans are easily refinanced even in the current tight commercial real estate lending environment.

Using a net asset value (NAV) approach that compares the supportable loan amount versus mortgage balance shows that the 2001–2004 vintages are overcollateralized at NAVs of 130% or more. This shows there is significant borrower equity in these transactions. Prepayment in the open period and even defeasance of these loans is highly likely, particularly if lending standards improve.

Defeasance within the group ranges from 34% on average for the 2001 vintage to 14% for the 2004 vintage.



Avg. AnnualCPPI Index Implied Value

Vintage at Origination Change 2001 1.030 10.3%2002 1.061 7.1%2003 1.157 -1.8%2004 1.308 -13.1%2005 1.560 -27.2%2006 1.692 -32.9%2007 1.873 -39.3%2008 1.749 -35.1%

Note: Implied change based on Index reading for Dec. 2009.Source: Moody's Investors Service, Inc. andWells Fargo Securities, LLC.

0.91.01.11.21.31.41.51.61.71.81.92.0

12/0

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2

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3

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4

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5

12/0

6

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7

12/0

8

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9

Source: Real Capital Analytics (RCA).

Moody’s REAL CPPI National All Property Index

Based on Moody’s REAL All Property CPPI data, property values are now back to 2002 levels.

The impact of this decline is most acute for the 2005 and later vintages, where property price declines imply current LTV ratios may be at or above 100%. On average, 2005 transactions were underwritten at 69.7% LTV, and after applying a 27.2% value decline based on CPPI, the current LTV ratio would reach 96%.

For the 2006 vintage, an implied LTV goes to 103% and for the 2007 vintage implied leverage is 115%.

In contrast, properties underwritten in 2002 at a 69.1% LTV would be at around 60% levered based on CPPI data and eight years of amortization.



0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008

Outs

tandin

g B

al ($

Bill

ions)

Defeased Bal ($) Non-Defeased Bal ($)

Source: Wells Fargo Securities, LLC, and Trepp, LLC.

% Currently Defeased

2000 - 34.0% 2001 - 34.4%2002 - 29.2% 2003 - 19.9%2004 - 14.4% 2005 - 4.00%

Defeased Balance by Vintage

Defeasance within the group ranges from 34% on average for the 2001 vintage to 14% for the 2004 vintage.



Avg Orig.Settle Securitized Loan Orig. Orig. Net Full Partial Total Ln. Sz. Lock-OutYear Bal. ($mm) Count LTV DSCR Cpn IO % IO % IO % ($mm) Per.1995 2,951 862 67.8 1.39 9.07 0.00 0.03 0.03 3.42 461996 9,994 2,474 68.0 1.45 8.65 0.00 0.02 0.02 4.04 451997 22,024 4,130 69.7 1.39 8.44 0.00 0.03 0.03 5.33 401998 51,398 9,670 70.3 1.48 7.36 0.02 0.05 0.07 5.32 401999 37,391 7,367 69.9 1.43 7.44 0.02 0.05 0.07 5.08 402000 28,678 5,005 68.1 1.41 8.12 0.01 0.07 0.08 5.73 382001 38,843 5,733 68.1 1.45 7.51 0.03 0.08 0.12 6.78 302002 34,514 4,331 69.1 1.53 6.90 0.02 0.09 0.11 7.97 302003 53,425 5,647 67.8 1.72 5.62 0.08 0.15 0.24 9.46 302004 73,502 6,701 68.8 1.64 5.48 0.14 0.30 0.44 10.97 312005 135,489 10,117 69.7 1.55 5.32 0.26 0.38 0.65 13.39 272006 161,314 11,701 69.1 1.43 5.84 0.32 0.42 0.74 13.79 282007 191,475 11,768 70.0 1.38 5.86 0.57 0.29 0.86 16.27 252008 10,707 819 68.1 1.35 6.20 0.31 0.50 0.81 13.07 29

Source: Intex Solutions, Inc., Trepp, LLC, U.S. Treasury and Wells Fargo Securities, LLC.

Underwriting Quality by Vintage

Within the seasoned vintages, there are a number of distinctions that may be material to performance. Specifically, the proportion of total interest-only (IO) loans ranges from 12% for the 2001 vintage to 44% for 2004.

Current collateral-weighted average coupons (WAC) range from 7.4% for the 2001 vintage to 5.5% to the 2004 vintage.

Although loans within these vintages, on average, are well collateralized, we would expect these differences to affect the maturity repayment timing experience between vintages.



Underwriting Quality by Vintage2000 2001 2002 2003 Total

Still Outstanding 14.1% 14.1% 7.3% 23.5% 14.4%Paid at Maturity 25.6% 21.5% 42.7% 15.5% 25.9%Paid Post Maturity 3.3% 4.5% 3.0% 4.3% 3.4%Prepay During Open 43.6% 21.8% 32.7% 25.2% 39.4%Prepay with YM or Penalty Pts 5.8% 30.3% 11.1% 30.7% 10.4%Defeased 7.6% 7.9% 3.3% 0.8% 6.5%Source: Trepp, LLC and Wells Fargo Securities, LLC.

VintageStill

OutstandingPaid at

MaturityPaid Post Maturity

Prepay During Open

Prepay with YM or Penalty Pts

Liquidated / Impaired Before

Maturity

Liquidated / Impaired At

Maturity or AfterOther Defeased

2000 1,063.8 1,936.3 248.0 3,297.8 438.3 661.7 167.3 109.7 572.32001 81.6 124.7 25.9 126.2 175.8 37.1 13.3 0.8 45.92002 70.6 412.7 29.0 316.1 107.4 10.3 32.3 10.3 31.72003 256.9 169.2 46.6 275.1 334.7 0.0 0.0 7.3 9.0Total 1,473.0 2,642.9 349.5 4,015.3 1,056.2 709.2 213.0 128.0 658.9

Note: Includes all fixed-rate conduit loans with maturity dates between January 2009 and February 2010.Source: Wells Fargo Securities, LLC and Trepp, LLC.

VintageStill

OutstandingPaid at

MaturityPaid Post Maturity

Prepay During Open

Prepay with YM or Penalty Pts

Liquidated / Impaired Before

Maturity

Liquidated / Impaired At

Maturity or AfterOther Defeased

2000 217 473 89 707 187 138 42 19 1252001 12 37 18 32 82 18 3 3 222002 8 57 5 38 21 2 3 2 52003 21 24 6 29 47 0 0 4 1Total 258 591 118 806 337 158 48 28 153

Note: Includes all fixed-rate conduit loans with maturity dates between January 2009 and February 2010.Source: Wells Fargo Securities, LLC and Trepp, LLC.

2000-2003 Vintage Maturities by Count

2000-2003 Vintage Maturities by Balance ($million)

Prepayment during the open period has been the most common resolution for loans from the 2000–2003 vintages that maturated from January 2009 to February 2010.

The lion’s share of seasoned loan maturities during the measurement period came from the 2000 vintage. Of the nondefaulted loans from the 2000 vintage that reached maturity from January 2009 to February 2010, 43.6% prepaid during the open period.

The results are mixed for the 2001–2003 vintages but are based on small sample sizes.


DISCLOSURE APPENDIX

Additional information is available on request.

This report was prepared by Wells Fargo Securities, LLC.

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