According to S&P's Structured Finance Ratings Roundup Quarterly: Third-Quarter Performance Trends, REITs remained relatively stable in Q3 while absorbing $3.6 billion in new debt and preferred securities. S&P regards REIT performance as " comparatively strong" among its rated companies "despite signs that the economy was moving toward a mild recession, which had been factored into our ratings perspective prior to September 11," says Lisa Sarajian, managing director. "Unfortunately, the recent terrorist attacks and the uncertain additional impact they will ultimately have on consumer and business confidence have materially clouded the economic landscape." The effect, Sarajian says, will be falling ratings for S&P companies over the next few quarters at least.

Likewise, the CMBS market so far has managed to shake off any negative effects of an already-weakening economy that suffered further declines following the events of September 11. In fact, Q3 CMBS saw more than $2 billion in upgrades, exceeding downgrades by a margin of 13 times.

Nonetheless, S&P repeats its earlier prediction that the lodging industry's continued woes will prove to be a drag on CMBS. Last month's terrorism attacks had an immediate impact on the travel and hospitality industries, with hotels hit particularly hard. S&P says it expects reduced occupancy rates to result in lodging delinquencies in the short term, though the situation could change if the hotel industry pulls off a timely recovery. "These delinquencies will likely lead to some CreditWatch placements, whereas lowered ratings will be more dependent on how quickly, and by how much the occupancy levels can bounce back," says Roy Chun, director of CMBS surveillance.