"Most of these first-time managers, however, are working with a learning curve regarding their responsibilities toward the many counterparties in a CREL CDO that investors should be cognizant of," says Fitch senior director Vincent Matsui. Matsui points out that CREL CDO managers have the added task of demonstrating highly specialized CREL experience, skills and market knowledge. "This is especially important in a market as idiosyncratic as real estate. Sound loan origination and servicing skills are a must for a successful CREL CDO manager." Matsui says they handle front-end and ongoing work of creating and administering a CREL CDO's loan collateral, which is in contrast to structured finance CDO managers who "characteristically leave the collateral creation role to Wall Street bankers and administration to trustees or the issuers themselves."

The report states that the servicer's reporting role is "vital to the successful surveillance and management of a CREL CDO's collateral." There is generally no other source of timely information the CREL CDO manager can rely on to effect early remediation in the case of a distressed credit. Investors should view skilled primary and special servicing competence, either through the CDO manager or a qualified third-party, as a basic requirement of a prudently managed CREL CDO, the report states.

"Sound servicing is the foundation of a CDO manager's ability to monitor a CREL portfolio and to work out distressed credits, especially with regard to high maintenance collateral, adds Fitch director Rich Carlson. "Investors must examine a CREL CDO manager's plans to service the collateral on an ongoing basis and in times of distress." Fitch encourages investors to demand "best practices" of this special class of CDO manager.