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NEW YORK CITY-It will be another banner year for CMBS, according to Fitch Ratings. Fitch expects upgrades to continue to far outpace downgrades. The outlook for fixed-rate multi-borrower transactions is more positive than that for floating-rate large loan deals.

Fitch views floating-rate transactions with caution in a rising interest rate environment. If transitional assets do not turn around and stabilize in the projected time, refinancing of those assets at maturity could be problematic, the report says "Refinancing risk and adverse selection leave floating-rate transactions more susceptible to downgrades," says Mary MacNeill, managing director, Fitch Ratings. Although delinquencies have been noted in areas affected by Hurricane Katrina as well as Rita and Wilma, some of these are expected to be short lived once insurance proceeds are received. In addition, loans in the Hurricane Katrina disaster area are a small percentage of all CMBS.

Rising interest rates affect maturing floating rate loans because they are structured with three-year maturities and only two one-year extension options. Stronger performing loans on traditional assets are typically the first to refinance, leaving poor performing loans or transitional assets in a transaction.