A recent Standard & Poor's quarterly survey reported that the domestic CMBS delinquency rate in 1Q05 fell to 1.04%, decreasing from 1.18% at year-end 2004, and from its 1.96% peak at the end of 2003. While the decline is partially attributed to the large amount of new issuance, S&P stated there have also been fewer actual delinquencies. For example, in 1Q04, delinquencies totaled $3.98 billion, $3.38 billion at the end of 2004, and $3.04 billion at the end of 1Q05. S&P attributed the improvement to several factors, including liquidity, low interest and capitalization rates, property appreciation, job growth, improving real estate fundamentals and attractive relative yields.

Looking ahead to the remainder of the year, S&P believes delinquency levels will remain low. While interest rates are expected to rise modestly, it shouldn't be enough to impair a borrower's ability to make monthly payments or to refinance, adds the rating agency added. Also, the broadening investor base and strong demand provides excellent liquidity for refinancings. Improvement in 30- and 60-day delinquencies - down 34% and 50%, respectively - from the last quarter is also an encouraging sign.

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