In more than one instance last week dealers used the word "stable" to describe the CMBS market after weeks of cheapening and uncertainty regarding collateral performance. With spreads now firm and in a narrow range, there can be meaningful discussion about where relative value lies and what sectors in which to focus. The larger story centers on an up-in-credit move, primarily targeting triple-A tranches, and there is increased vigilance regarding the hotel exposure shared by many issues.

According to Deutsche Banc estimates, the hotel sector accounts for fewer than 10% of the collateral in conduits, and within that percentage, there is reason to believe that the industry impact will be mitigated. Many of the loans in the conduits are secured by "limited service" or "economy" hotels, which have not seen the dropoff in demand compared to high-end hotels that began during the second quarter of 2001. As Salomon Smith Barney points out, the recent tragedy is going to hurt full-service hotels, especially those in tourist destinations, but travelers turning to auto travel will be looking for discounted lodging instead.

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