By Gale C. Scott, managing director, real estate, and Peter P. Kozel, research head, commercial real estate, Standard & Poor's Ratings Group
In its rating process, Standard & Poor's focuses on the capacity of the underlying assets to support the payment of principal and interest on structured securities through the entire business cycle. Unlike large pools of homogeneous assets, such as residential mortgages that have small performance variability, a pool of commercial mortgages tends to have more volatile cash flows. This is because commercial properties are more heterogeneous and sensitive to changing local economic and market conditions. Consequently, it is very difficult to predict the cash flows from a pool of commercial mortgages with a high degree of certainty.