Fitch Affirms N-STAR REL CDO VI CRE CDO

Business Wire, Jan 17, 2007

NEW YORK -- Fitch affirms all classes of N-STAR REL CDO VI (N-Star VI) notes as follows:

--$174,800,000 class A-1 floating-rate notes affirmed at 'AAA';

--$70,000,000 class A-R revolving floating-rate notes affirmed at 'AAA';

--$27,225,000 class A-2 floating-rate notes affirmed at 'AAA';

--$21,825,000 class B floating-rate notes affirmed at 'AA';

--$12,825,000 class C floating-rate deferrable interest notes affirmed at 'A ';

--$13,950,000 class D floating-rate deferrable interest notes affirmed at 'A-';

--$10,125,000 class E floating-rate deferrable interest notes affirmed at 'BBB ';

--$7,650,000 class F floating-rate deferrable interest notes affirmed at 'BBB';

--$9,900,000 class G floating-rate deferrable interest notes affirmed at 'BBB-'.

Deal Summary:

N-Star VI is a revolving commercial real estate cash flow collateralized debt obligation (CDO) that closed on March 17, 2006. It was incorporated to issue $450,000,000 of floating-rate notes and preferred shares. As of Dec. 12, 2006, the CDO is invested in a portfolio of commercial mortgage whole loans and A-notes (58%), B-notes (11%), commercial real estate mezzanine loans (19%), preferred equity (5%), and commercial real estate collateralized debt obligations (7%). The CDO is also permitted to invest in real estate-related corporate and bank debt and commercial mortgage-backed securities (CMBS).

As of Dec. 12, 2006, the CDO was fully invested in loans and securities, of which 92% is funded and 8% is unfunded on the class A-R notes. Bondholders have committed up to $70,000,000 for class A-R notes. As of the December 2006 trustee report, $36,221,347 has been drawn.

The portfolio is selected and monitored by NS Advisors, LLC, an indirect wholly owned subsidiary of NorthStar Realty Finance Corp. (NYSE:NRF) (NorthStar, rated 'CAM2' as an asset manager by Fitch). N-Star VI has a five-year reinvestment period during which, if all reinvestment criteria are satisfied, principal proceeds may be used to invest in substitute collateral. The reinvestment period ends in March 2011.

Asset Manager:

NS Advisors, LLC is a wholly owned subsidiary of NorthStar Realty Finance Corp., an internally-managed real estate finance company operating as a REIT. NorthStar has three business lines: real estate debt, real estate security purchasing, and net lease property ownership. The Net Lease Properties business concentrates on the acquisition of real estate properties primarily net leased to corporate tenants. The Real Estate Debt business originates, acquires, and structures senior and subordinate debt investments secured by income-producing real estate properties. The Real Estate Securities business invests in commercial real estate debt securities, including commercial mortgage backed securities, CDOs, REIT unsecured debt, and credit tenant loans. Both the Real Estate Debt and Real Estate Securities businesses are financed in the CDO market, and as of Sept. 30, 2006, NS Advisors, LLC had approximately $4 billion in assets under management, consisting of real estate securities and real estate debt positions financed through eight issued CDOs.

Performance Summary:

Since closing and as of the December 2006 trustee report, the CDO still has a significant amount of reinvestment flexibility. The Fitch poolwide expected loss (PEL) is 27.25% compared to a covenant of 44.125%. This results in an above average cushion of 16.875%.

Since close, the pool has migrated towards more whole loans and A notes (to 58% from 39%), and less B notes, second mortgages, mezzanine debt, and preferred equity (to 35% from 42%), and maintained its exposure to commercial real estate collateralized debt obligation securities (7%).

As expected, with the increase in whole loans, the weighted average spread (WAS) has decreased since close to 3.97% from 4.11%; however, the WAS remains above the covenant of 3%. The weighted average coupon (WAC) has increased slightly to 8.26% from 8.12% at close and continues to remain above the 6% covenant. 2.57% of the loans in the pool are fixed rate and unhedged, below the covenanted 5%. The weighted average life (WAL) has decreased to 2 years from 3 years at close, implying that the loans will fully turnover during the reinvestment period.

The over-collateralization (OC) ratios of all classes have remained the same since close while the interest coverage (IC) ratios have improved over the same period. The improvement in the IC ratios is attributed to converting cash balances to loan investments. Both tests are within their covenants as of the December 2006 trustee report.

Although there is above average reinvestment cushion, upgrades during the reinvestment period are unlikely, given the pool could still migrate to the PEL covenant. The Fitch PEL is a measure of the hypothetical loss inherent in the pool at the 'AA' stress environment before taking into account the structural features of the CDO liabilities. Fitch PEL encompasses all loan, property, and poolwide characteristics modeled by Fitch.

Collateral Analysis: