Fitch Ratings Affirms Morgan Stanley Capital I, Series 1998-HF2

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Morgan Stanley commercial mortgage pass-through certificates, series 1998-HF2, as follows:

--Interest only class X at 'AAA';

--$52.2 million class D at 'AAA';

--$21.2 million class E at 'AAA';

--$23.8 million class F at 'AAA';

--$18.5 million class G at 'AA-';

--$10.6 million class H at 'A';

--$21.2 million class J at 'BBB-'

--$10.6 million class K at 'BB'; and

--$15.9 million class L at 'B-'.

In addition, Fitch maintains the $10.6 million class M at 'CCC/DR3'. Fitch does not rate the $0.4 million class N certificates. Classes A-1, A-2, B, and C have been paid in full.

The affirmations are based on the high credit enhancement in light of significant exposure to loans maturing in 2008 (39%). Currently, six loans (10.5%) are defeased, including the third largest loan (5.7%) that remains in the pool. As of the August 2008 distribution date, the transaction has paid down 75% to $184.8 million from $1 billion at issuance.

Three loans are currently with the special servicer due to maturity balloon default. The second largest loan remaining in the pool (7.3%) was transferred on August 11th after the borrower indicated they do not have refinancing capital available. The loan is secured by a 1.1 million square foot (sq) warehouse in Arlington, TX. Based on current cash flow and the low loan per square foot ($17), losses are not expected at this time.

The second loan (2.26%) in special servicing is secured by a 117,000 sf retail property in Marietta, GA. The loan's anticipated repayment date was in March 2008, and the interest rate increased from 7.26% to 10.26%, substantially increasing debt service. The borrower has been unable to pay the increased debt service amount. Additionally, in light of tenant vacancies, income has dropped and the property stands at 28% occupancy. A recent broker opinion of value indicates that losses are likely.

The final specially serviced loan (0.24%) is secured by a 37,000 sf warehouse in Arlington, TX. The sponsor to the loan passed away and his heirs are running his assets through probate. The probate hearing is on August 25th, at which time the family expects to pay off the loan. No losses are expected at this time.

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