Structured Finance. KeyBank Real Estate Capital. CMBS Servicer / U.S.A. Servicer Report. Servicer Summary. Key Rating Drivers

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1 KeyBank Real Estate Capital Servicer Report CMBS Servicer / U.S.A. Ratings Commercial Master Servicer Commercial Primary Servicer Commercial Special Servicer CMS1 CPS1 CSS2+ Servicer Summary KeyBank Real Estate Capital (KBREC, or the company) is a CMBS primary, master, and special servicer rated CPS1, CMS1, and CSS2+, respectively, by Fitch Ratings. See page 13 for Servicer at a Glance details. The master and primary servicer ratings reflect KBREC s servicing experience, commitment to technology, experienced management team, and strong internal control environment. The special servicer rating reflects the experience and tenure of the company s asset managers, the ability of asset managers to resolve defaulted loans, and the presence of policies and procedures to mitigate potential conflicts of interest with third-party clients. Key Rating Drivers Experienced Management and Staff: Senior managers in master and primary servicing have 15 years of tenure and 28 years of industry experience, while middle managers have nine years of tenure and 14 years of industry experience. Special servicing senior managers have nine years of tenure and 23 years of workout experience. Effective Internal Controls: KBREC has dedicated internal compliance and internal risk review groups. The internal compliance group is responsible for administering and maintaining KBREC s policies and procedure program that is used to support management assertions that effective controls are in place to mitigate risks. The team conducts reviews of various servicing policies and procedures and provides feedback to senior management on their overall effectiveness. Related Research Fitch Affirms KeyBank Real Estate Capital Servicer Ratings (October 2012) Fitch: No Servicer Rating Impact Expected from KeyBank Subservicing Agreement (April 2012) Fitch Affirms Key s Long Term IDR at A ; Outlook Stable (November 2011) Highly Developed Technology Platform: KBREC s core servicing system is Strategy version 14b, which is a commonly used system of record for CMBS servicers. KBREC maintains only one ancillary system, RECWeb, to perform servicing functions outside of Strategy and asset administration. RECWeb, which is developed and maintained by KeyCorp, is integrated with Strategy and the company s data warehouse to support the company s investor and borrower Web portals. Investment-Grade Financial Support: Fitch maintains a long-term issuer default rating for KeyCorp of A with a Stable Rating Outlook as of Nov. 18, Governance and Conflicts of Interest: Fitch views special servicers with strong corporate governance and established procedures to mitigate conflicts of interest favorably. KBREC, as a division of KeyCorp, has documented procedures to address potential conflicts of interest, and employees are required to attend compliance training annually. Analysts Adam Fox adam.fox@fitchratings.com Dan Chambers dan.chambers@fitchratings.com

2 Company Overview KBREC is a unit of Cleveland-based KeyCorp, a large bank-based financial services company with assets of approximately $87 billion as of June 30, KBREC is committed to providing total real estate finance solutions to its clients. KeyCorp maintains the nation s 12thlargest branch network, with community banking in 14 states. KBREC is a fullservice real estate finance organization with a national platform that provides local delivery channels. KBREC provides solutions to REITs, commercial and residential developers, and investment brokerage firms. Both KeyCorp and KBREC are headquartered in Cleveland, OH, with commercial loan servicing primarily run from KBREC s Overland Park, KS office. Originations and servicing support is also provided by regional offices in Dallas, TX, Denver, CO, and Bellevue, WA. KBREC s recent accomplishments during the past 12 months reflect the company s efforts to grow the servicing portfolio through new assignments and diversify beyond commercial real estate: New master or primary servicing for 12 CMBS 2.0 transactions. Servicer Ratings Fitch rates primary and master servicers, which protect the interests of the certificateholders in the trust, by servicing and administering the mortgage loans. The primary servicer is responsible for day-to-day servicing functions, while the master servicer is responsible for monitoring the activities of the primary servicers, investor reporting, and timely remittance of funds to trustees. Fitch also rates special servicers, which are key to maintaining the credit quality of a pool containing nonperforming commercial mortgages and real estate-owned assets. The special servicer is responsible for working out loans, foreclosing, and liquidating assets. In assessing and analyzing the capabilities of primary, master, and special servicers, Fitch reviews several key factors, including the management team, organizational structure and operating history, financial condition, information systems, and, with respect to the special servicer, workout and asset disposition experience and strategies. Fitch rates commercial mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within each of these rating levels, Fitch further differentiates ratings by plus (+) and minus ( ) as well as the flat rating. New special servicing for nine new transactions totaling $5.2 billion. New servicing assignments for small business association loans. Continuing to develop and enhance the functionality of the company s workflow application and increase employee training hours. Related Criteria U.S. Commercial Mortgage Servicer Rating Criteria (February 2011) Global Rating Criteria for Structured Finance Servicers (August 2010) In April 2012, KBREC entered into a seven-year agreement with Berkadia Commercial Mortgage, LLC to transfer primary servicing responsibility and associated deposits for approximately 4,700 commercial mortgage loans with an outstanding balance of $39.3 billion from KBREC to Berkadia. In return, KBREC will receive an unspecified amount of deposits secured by U.S. Federal Housing Authority mortgages from Berkadia. The transfer of servicing was the result of a downgrade of KeyBank, NA s corporate rating by Moody s, making it ineligible to hold deposit accounts associated with securitized commercial mortgage loans under Moody s criteria. In conjunction with the transfer of servicing, KeyBank Real Estate Capital eliminated approximately 70 positions, reducing its commercial servicing staff by 25%. KeyBank Real Estate Capital 2

3 Total Servicing Portfolio Overview 6/30/12 12/31/11 12/31/10 UPB Total Servicing Portfolio ($ Mil.) 101, , ,067.8 No. of Loans Total Servicing Portfolio 11,181 11,883 11,509 UPB Primary Servicing ($ Mil.) 59, , ,120.9 No. of Loans Primary Servicing 6,764 6,666 7,330 UPB Master Servicer ($ Mil.) 65, , ,759.7 No. of Loans Master Servicer 7,352 7,178 7,688 UPB Named Special Servicer ($ Mil.) 13, , ,656.5 No. of Loans Named Special Servicercing 2,356 2,370 2,268 UPB Actively Special Servicing a ($ Mil.) No. of Loans Actively Special Servicing a a Including REO. Financial As of Nov. 18, 2011, Fitch maintains a long-term issuer default rating for KeyCorp of A - with a Stable Rating Outlook. Fitch s most recent assessment of KeyCorp reflects the company s continued credit quality improvements, enhanced liquidity and capital position, reduced risk profile, and the view that the company s recent performance is sustainable. Fitch also noted KeyCorp s operating performance has benefited from a reduction in credit costs as asset quality continues to improve, with eight consecutive quarters of declines in nonperforming assets. Employees As of May 31, 2012, KBREC maintained a total staff of 222 employees, consisting of 177 stafflevel and 45 management personnel within the loan servicing group. The special servicing group is made up of 11 asset managers, 25 support staff, and nine management employees. While the company decreased the number of master and primary servicing employees to 222 from 241 during the past 12 months, special servicing employees increased to 34 from 28 employees for the same period. Fitch found that the high turnover within master and primary servicing operations did not have a negative effect on aggregate staff tenure or experience. The primary and master servicing operations experienced aggregate turnover of 17% during the 12 months ended June 2012, consisting of 20% at the staff level and 8% at the management level. Turnover within master and primary servicing was the result of KBREC s subservicer agreement with Berkadia. Primary and master servicing senior managers average 15 years of tenure and 28 years of commercial real estate experience. Middle managers of the group have been with the company for nine years and have 14 years of experience. Staff level employees, who experienced the highest turnover, continue to have five years of tenure and eight years of experience. Senior managers of the commercial loan servicing group perform periodic reviews of operational effectiveness and staffing needs relative to current and projected servicing volume, performance, and established service level goals to determine staffing needs. KeyBank Real Estate Capital 3

4 Employee Statistics No. of Employees Avg. Years Industry Experience Avg. Years Tenure % Turnover No. of Employees Avg. Years Industry Experience Avg. Years Tenure Primary Servicing Senior Management Middle Management Servicing Staff Total Special Servicing Senior Management Middle Management Asset Managers a Servicing Staff Total a Some senior and middle managers and staff were counted as asset managers. The special servicing group experienced 23% aggregate turnover during the past 12 months due to seven departures, including six staff and one middle management employees. Turnover among asset managers was 17% in 2011 as the team shrank to 11 asset managers from 13. The special servicing group is composed of two senior managers averaging nine years of tenure and 23 years of industry experience. Middle managers of the special servicing group have been with the company for six years and have 12 years of experience. The 11 asset managers average six years of tenure and 12 years of industry experience. Fitch calculated the ratio of assets to asset manager to be 13:1 as of March 31, 2012, which is in line with the average of Fitch-rated servicers. Training The KBREC training program is administered by KeyCorp s business training team that is made up of a business training manager dedicated to mortgage servicing and supported by the KeyCorp training team. The goal of the program is to ensure that a wide variety of training opportunities are offered and training hours are tracked, allowing all employees to meet or exceed training benchmarks and goals. The team is responsible for creating training plans, in tandem with the lines of business management and human resources that are housed in KBREC s learning management system called My Learning Center. KBREC employee training hours for the 12 months ending May 2012 were among the highest of comparable Fitchrated servicers. Training courses are delivered in numerous ways including but not limited to on line from My Learning Center, recorded webinar sessions, external subject matter experts, internal subject matter experts, business training managers, and compliance managers. All on-line courses and training hours are tracked through My Learning Center and can be viewed by employees and managers. KBREC employees averaged 50 hours of training in the 12 months ended May 31, 2012, which is above the average of comparable Fitch-rated servicers. Fitch reviewed the November 2011 internal audit of KBREC that was found to be thorough and complete. The audit reviewed technology, compliance, and operational risk elements associated with commercial loan servicing and showed that adequate controls existed to address risks. Internal Control Environment Internal Controls Internal controls are addressed by KBREC s compliance team and KeyCorp s internal risk review (IRR) group. The compliance team consists of a vice-president and two compliance managers responsible for all internal and external audits and reviews. The team is also KeyBank Real Estate Capital 4

5 responsible for administering and maintaining KBREC s policies and procedure program that is used to support management assertions that effective controls are in place to mitigate risks. The team conducts reviews of various servicing policies and procedures and provides feedback to senior management on their overall effectiveness. KeyBank s IRR group performs internal audits under the guidance of the bank s external audit firm and at the direction of KeyCorp s senior audit committee and financial governance group. The group works closely with the external auditor to perform investigative field work, conducts regular testing, and provides data to support external audits. Examples of IRR audits include procedures surrounding the administration and monitoring of flood insurance, cash management, investor reporting, delinquency management, and payment processing. External Audits KBREC is subject to annual Regulation AB and USAP audits for its CMBS portfolio. In addition, the company undergoes an annual Commercial Real Estate Services & Technology Solutions SSAE 16 review. KBREC is also subject to periodic operational audits by the Federal Deposit Insurance Company, Fannie Mae, FHLMC, Government National Mortgage Association, Office of the Comptroller of the Currency, and Ernst & Young, LLP for Sarbanes-Oxley and Basel compliance. Audits Audit Date Auditor Findings Reg AB Feb. 27, 2012 Ernst & Young, LLP None USAP Feb. 27, 2012 Ernst & Young, LLP None Policies and Procedures Fitch reviewed a representative sample of KBREC s policies and procedures and found them to be complete. The policy statements provided a high level overview of tasks while procedures listed more detailed steps necessary to complete a task. KBREC policies and procedures are written to address the compliance requirement of KeyCorp and regulators. To maintain consistency in the writing of policies and procedures, guidelines and a template have been created and are available to all employees via RECWeb. The KBREC policies and procedures are designed to ensure the creation, revision, and approval of committee documents, policies, procedures, forms, form letters, and reports/logs/lists as needed to meet accepted servicing industry standards and maintain compliance with servicing agreements. Employees access current approved KBREC policies and procedures via RECWeb. Notifications of new and updated policies and procedures are ed to employees affected by the procedures. Vice-presidents and managers for functional areas within servicing are responsible for training staff to ensure compliance with new or revised policies. Information Technology KBREC maintains all ancillary servicing functions within one centralized system, allowing it to have significantly less ancillary support systems than other Fitch-rated servicers. KBREC uses Strategy from McCracken Financial Services as its primary servicing system. Strategy is supported by Key Enterprise Technology. Functionality not contained within Strategy is maintained in KBREC s secondary system RECWeb, which is built Core Systems Primary System Version and maintained by the Key Enterprise Strategy 14b fix2 Technology team using Web-based RECWeb technology. The application supports each KeyBank Real Estate Capital 5

6 aspect of the loan management lifecycle from pipeline management to disposition. RECWeb is also integrated with KBREC s proprietary document imaging system that also supports the company s borrower and investor Web portals. Data from Strategy and RECWeb are fed nightly into KBREC s data repository that is used to produce management and operational reports. Reports are written using Crystal Reports, and a limited number of power users within KBREC have the ability to create and run reports on an ad hoc basis. KeyCorp maintains 24-hour technology support for emergency calls and systems outages through a centralized help desk. Disaster Recovery/Business Continuity Plan KBREC maintains disaster recovery and business continuity procedures that are distributed to employees via written procedures, verbal communication, , and training. The plans are reviewed and certified by the KBREC corporate continuity and recovery group, and disaster recovery exercises are performed up to four times a year. The most recent disaster recovery event occurred in April 2012 and was deemed successful. KBREC s main data center is located in Solon, OH and a secondary location is in Albany, NY. Data is replicated real time between the centers, resulting in a maximum possible data loss of five minutes. Both data centers have backup uninterrupted power supply systems and backup generators. The primary servicing systems, RECWeb and Strategy, have a recovery time objective of 12 hours. Primary Servicing As of June 30, 2012, KBREC s primary servicing portfolio included 62 CMBS transactions consisting of 396 loans with an external master servicer totaling $5.0 billion. In addition, the company s non-cmbs portfolio consisted of 3,433 loans totaling $29.9 billion, a significant decrease from year end 2011 due primarily to the transfer of loans to Berkadia. Primary Servicing Portfolio Overview 6/30/12 12/31/11 12/31/10 CMBS No. of Transactions Special Servicer UPB Named Special Servicer (Mil. $) 59, , ,120.9 No. of Loans Named Special Servicer 6,764 6,666 7,330 Non-CMBS UPB Named Special Servicer (Mil. $) 29, , ,849.2 No. of Loans Named Special Servicer 3,433 4,343 3,258 New loan setup begins with loan document review by the loan conversion team that assigns a new loan number in RECWeb and images the loan documents. Loans are assigned to a loan conversion specialist who initiates the new loans setup work log, reviews and interprets the loan documents, and inputs the data into Strategy and RECWeb. A senior conversion specialist performs quality control on the loan in Strategy and RECWeb, reviews the individual new loan report, and documents the review of the loan setup work log. Loan setup is monitored using the work log function and new loans are not passed to Strategy until all errors are cleared. On average, new loans are boarded to Strategy within 48 to 72 hours following the receipt of key loan documents; however, more complex loans with additional documentation may take longer. KeyBank Real Estate Capital 6

7 Bulk loan transfers follow a similar new loan setup process and are overseen by a conversions manager who works with the prior loan servicer to map key data elements to the Strategy system or performs a direct conversion from servicers already utilizing Strategy. Bulk uploads are boarded within seven to 10 days following receipt of the loans data file. KBREC reconciles loan payments daily regardless of whether they are automated or manual receipts as part of day-end processing. Bank accounts are reconciled at least monthly using an automated reconciliation process within RECWeb. Exceptions are reviewed, researched, and resolved in a timely manner. It is KBREC policy that all custodial accounts be reconciled monthly. Suspense items are reviewed on a daily basis and all reconciled items are cleared within 45 days. Investor reports are generated within RECWeb by the investor reporting department, which supports the current commercial real estate finance council (CREFC) Investor reporting package, as well as the ability to perform ad-hoc reporting. Accuracy and timeliness for investor reporting information and data are monitored and validated within RECWeb. Tax and insurance analysis is performed annually following new loan setup. Taxes are analyzed 30 days after the first tax installment, and insurance premiums are analyzed 90 days after the expiration of the property insurance policy. An escrow analysis due report is generated for the prior month to monitor escrow analysis. Reserve account draws, maintenance, and processing are the responsibility of the account management group. The Property Type CMBS Master and Primary Servicing Portfolio (As of June 30, 2012) Office 25.6% Healthcare 1.4% Hotel/Motel 7.8% Mixed Use 2.6% Geographic Distribution CMBS Master and Primary Servicing Portfolio (As of June 30, 2012) Fl 7.4% TX 7.6% NY 15.3% Other 36.1% VA 3.9% CA 15.9% AZ 2.6% MD 2.9% OH 2.8% WA 2.8% Note: Numbers may not add to 100% due to rounding. Source: KeyBank Real Estate Capital. Multifamily 27.2% Industrial 3.7% Retail 24.3% Office 15.0% Self Storage 1.3% Retail 10.2% Other 22.0% Multifamily 26.5% Note: Numbers may not add to 100% due to rounding. Source: KeyBank Real Estate Capital. Self- Storage 0.1% MA 2.7% Property Type Non-CMBS Master and Primary Servicing Portfolio (As of June 30, 2012) Industrial 0.2% Office 15.0% Retail 10.2% Note: Numbers may not add to 100% due to rounding. Source: KeyBank Real Estate Capital. Securities 3.4% Other 3.4% group reviews and collects any additional information from the borrower and submits the KeyBank Real Estate Capital 7

8 request to management for approval. Depending on the amount of the request, controls are in place that require several levels of management approval prior to distribution of funds to the borrower. The escrow manager reviews all escrow analysis. Analysis due dates are tracked in Strategy and RECWeb to ensure that all loans are reviewed at the appropriate interval. Site inspections are ordered through third-party vendors for properties outside the Kansas City metropolitan service area (MSA) with properties within the MSA performed in-house. All inspections are reviewed by surveillance analysts and account managers who are responsible for deferred maintenance follow-up. Once inspections are received, reviewed, and input into RECWeb by the surveillance analyst, a work log is created for any properties with deferred maintenance. A variety of reports are used to monitor workflow and vendor performance, including inspection delinquency and scheduling reports. The surveillance team within KBREC is responsible for the collection of property operating statements and rent rolls. The collection process includes two reminder letters and follow-up calls for delinquent statements. The surveillance team is also responsible for the analysis and reporting of operating statement and rent roll data that is compiled by the investor reporting team for trustee reporting. KBREC s stated goal for statement analysis is 30 days; however, during the first six months of 2012, the turnaround time has been within 15 days of receipt. KBREC inputs and reviews all commercial property tenants on a quarterly basis. Performance of the team is monitored using a variety of workflow reports including missing statement and number of statement spread reports. KBREC utilizes the CREFC watchlist criteria through RECWeb. KBREC s stated policy is to review and refresh all watchlist comments monthly. Watchlist loans are reviewed monthly by the watchlist committee comprised of applicable vice presidents, supervisors, account managers, and surveillance analysts. Master Servicing Geographic Distribution Non-CMBS Master and Primary Servicing Portfolio (As of June 30, 2012) OH 10.1% WA 10.4% NY 14.2% CA 9.3% TX 8.4% NV 5.6% FL 4.0% MO 3.4% VA 2.9% Other 29.1% IL 2.5% Note: Numbers may not add to 100% due to rounding. Source: KeyBank Real Estate Capital. As of June 30, 2012, KBREC was named master servicer for 101 CMBS transactions, consisting of 7,352 loans totaling $65.7 billion. At that date, KBREC oversaw 24 third-party primary servicers who serviced 984 loans totaling $11.4 billion. Master Servicing Portfolio Overview 6/30/12 12/31/11 12/31/10 No. of Transactions Master Servicer UPB Master Servicing ($ Mil.) 65, , ,759.7 No. of Loans Master Servicing 7,352 7,178 7,688 No. of Primary Servicers Overseen KeyBank Real Estate Capital 8

9 KBREC s master servicing portfolio is divided among four master servicing account managers who are responsible for the central contact point for multiple subservicers. KBREC s subservicer oversight procedures include shadow posting of all loan payments, reviewing property inspections, operating statements, rent rolls, escrow activity, watchlist preparation, and directing default administration. In addition, the KBREC oversight procedures include a subservicer audit program for the 24 subservicers that are evaluated annually through either an on-site or desktop audit. The focus of the audits is loan-level compliance and the subservicers adherence to their stated policies and procedures. For the 12 months ended June 2012, KBREC performed 10 desktop and five on-site audits of its primary servicers. Fitch expects highly rated master servicers to have well-defined policies for monitoring advancing and be proactive in communicating with special servicers regarding the recoverability of advances. Servicing advances, including principal, interest, and property protection, are made as dictated by respective servicing agreements and deemed recoverable. It is the responsibility of investor reporting analysts to determine what advances are required. Advances are reduced by appraisal reduction events or updated collateral valuations in accordance with servicing agreements. All outstanding advances, interest on advances, and the repayment of advances, are tracked with RECWeb. KBREC has an advance monitoring committee comprised of managers, vice presidents and senior vice presidents that meet monthly to evaluate the recoverability of advances with the goal of preventing over-advancing. The committee considers all available information including valuations, asset strategy reports, budgets, and any pertinent information as well as consultation with the special servicer. Requests for transaction, loan, and property information are the responsibility of the surveillance group who provide feedback to investors, issuers, trustees, and rating agencies. KBREC maintains an investor website to provide standard CREFC reports, operating statements, and rent rolls. The investor reporting department reviews trustee reports for a limited sample of transactions monthly to verify the information against the monthly investor reporting package. Special Servicing As of June 30, 2012, KBREC was named special servicer for 2,356 loans totaling $13.9 billion in 26 CMBS transactions. As of the same date, KBREC was actively special servicing 90 CMBS loans totaling $110.5 million and was responsible for four CMBS REO assets totaling $12.4 million. At the same date, KBREC was specially servicing 504 non-cmbs loans totaling $886.1 million on behalf of third-party investors and insurance companies Special Servicing Portfolio Overview 6/30/12 12/31/11 12/31/10 CMBS No. of Transactions Special Servicer UPB Named Special Servicer (Mil. $) 13, , ,656.0 No. of Loans Named Special Servicer 2,356 2,370 2,268 UPB Actively Special Servicing (Non-REO) (Mil. $) No. of Loans Actively Special Servicing (Non-REO) UPB REO Assets ($) No. of REO Assets Non-CMBS UPB Named Special Servicer (Mil. $) 1, , ,068.5 No. of Loans Named Special Servicer 821 1, UPB Actively Special Servicing (Non-REO) (Mil. $) , No. of Loans Actively Special Servicing (Non-REO) UPB REO Assets ($) No. of REO Assets KeyBank Real Estate Capital 9

10 Fitch reviewed five asset summary reports (ASR) for loans transferred to KBREC 60 days prior to Fitch s on-site review. Fitch found the ASR reports to be completed in adherence to KBREC s stated policy, showed sufficient borrower and market research, and considered multiple possible resolution strategies. Loan Workout/Resolution KBREC monitors the status of the non-specially serviced assets through review of, and direct involvement with, the portfolio watch list process, advance monitoring, and by providing ongoing assistance to the master servicer with borrower requests and more complex issues. Developing issues are routinely brought to the attention of the special servicing unit by primary and master servicing and transactions processing groups well in advance of default. Upon the transfer of a loan by the master servicer to special servicing, a hold code is placed in the servicing system to stay all actions of the master servicer with the exception of payment collection and advances. All other loan functions are directed by the special servicing group. Upon transfer of a loan to special servicing it is assigned to an asset manager based on capacity and expertise with respect to property types, geographic location, and complexity. KBREC does not maintain separate asset management and real estate owned (REO) groups within special servicing. As a result asset managers are responsible for disposition from initial default to final resolution or liquidation. The ratio of assets to asset managers as of June 2012 was 16:1. KBREC prepares an initial asset status reports (ASR) for each new specially serviced loan, as required by the applicable servicing agreements, and updates monthly watch list comments. The initial ASR is prepared within 60 days per the terms of the pooling and service agreement (PSA), and is updated as required based on subsequent events. Specific updates include REO and receiver authorizations or other legal actions, authorization for sale, note sale, and other disposition recommendations. Business plans are approved by a 12- member credit committee comprised of two vice presidents, nine senior vice presidents, and the executive vice president of loan servicing and asset management. Fitch expects clear conflict of interest mitigation policies supported by annual compliance training for all employees among highly rated servicers. The asset manager also prepares a business plan for each assigned asset per the terms of the PSA. The creation of the business plan includes researching the cause of the loan default, communication with the borrower, property inspection, market research, valuation and operating analysis of the property, identification of alternative resolutions strategies and identification of a formal recommendation. Business plans are subsequently updated as warranted based on material changes in the market or property, or as required by the applicable PSA, or upon foreclosure or bankruptcy filing. Asset manager performance and workout activity are monitored using workflow tools in RECWeb and management reporting. KBREC has a workflow schedule for managing and disposing of REO properties that includes time management constraints that asset managers are required to follow. The schedule, which applies to all asset types, includes: requirement for loan transfer, initial evaluation, development of strategy, implementation of strategy, subsequent property operating milestones, and disposition. Asset managers are required to analyze property cash flows of REO properties against budgets and the impact of operational changes on the net present value (NPV) of the resolution strategy. Material changes in operations require re-analysis of the recommended strategy and NPV calculations, and potentially require new approvals. Governance and Conflicts of Interest Fitch reviewed the code of ethics policy of KeyCorp and found that it sufficiently addressed potential conflicts of interest and provided employees specific guidance for reporting violations of the policy or obtaining assistance. Managing Potential Conflicts Potential conflicts of interest in special servicing arise through various forms, particularly as investors retaining controlling positions in securitizations or specific loans have influence on workout strategies and the ability to select the special servicer. KeyBank Real Estate Capital 10

11 Fitch reviewed three sample business plans for specially serviced assets. The plans presented clear concise rational, the consideration of alternative resolution strategies, an NPV [please define] analysis, and clear reasoning for the resolution method selected. KBREC performs CMBS special servicing exclusively for third party clients. KeyCorp does not invest in CMBS B-pieces or subordinate loans for which KBREC would be appointed special servicer, although KBREC does specially service non-cmbs loans originated by KeyCorp. KBREC employees adhere to the KeyCorp code of ehics policy that contains specific policies addressing conflicts of interest and business ethics as it relates to KeyCorp s business lines. Furthermore, employees are required to attend annual compliance training and certify their understanding and compliance with KeyCorp s code of ethics policy. The code of ethics policy is complete and addresses the disclosure of material nonpublic information, business relationships and information disclosure with vendors, confidentiality, and fair dealing practices. Investor Relations Fitch views positively servicers that proactively disclose information to investors, including workout commentary, detail on modified loans, disclosure of fee information, and the Multifamily 67.9% collection and reporting of financial statement for defaulted loans. Property Type CMBS Special Servicing Portfolio (As of June 30, 2012) Other 0.2% Mixed Use 1.9% Industrial 1.6% Securities 0.1% Office 4.5% Note: Numbers may not add to 100% due to rounding. Source: KeyBank Real Estate Capital. Retail 10.7% Hotel/Motel 6.9% Healthcare 6.1% Geographic Distribution CMBS Special Servicing Portfolio (As of June 30, 2012) NJ 2.2% OR 0.7% IL 1.1% WA 2.6% TX 6.9% CA 22.2% FL 3.6% NY 14.9% Other 39.4% Wi 5.8% Note: Numbers may not add to 100% due to rounding. Source: KeyBank Real Estate Capital. KS 0.7% With respect to fee collection and disclosure, KBREC s practice is to offset trust fees (resolution, disposition and loan correction/workout fees) with fees collected from a borrower in a workout. KBREC s standard policy prohibits double dipping for modification or other fees payable pursuant to the PSA. Accordingly, if a borrower pays a loan modification or similar fee that pursuant to the PSA would be earned by the special servicer, KBREC will waive that amount against the loan correction fee or resolution fee paid by the trust. KBREC has stated that it does not have any reservations regarding the disclosure of borrower paid fees and will accept borrower paid fees to offset fees due from the CMBS trusts. Fitch reviewed a sample of five loans cured or modified by KBREC and returned to the master servicer to assess the availability of loan modification data and financial statements. For modified loans, Fitch found modification information was readily available within the trustee reports and CREFC reporting. Four of the five sampled loans had current financial information reported. KeyBank Real Estate Capital 11

12 Affiliated Companies Neither KBREC nor KeyCorp companies that provide real estate management or broker services. KBREC or affiliate entities may provide commercial real estate financing options to maturing CMBS loans. KeyBank Real Estate Capital 12

13 Servicer At A Glance KeyBank Real Estate Capital Company Experience (Years) CRE Servicing 20 CMBS Servicing 15 Overseeing Primary Servicers 15 CRE Loan Workout 15 CMBS Workout 15 Credit Rating Fitch Ratings has assigned KeyCorp a long-term issuer default rating of A, with a Stable Rating Outlook. Experience in Industry (Years) Tenure with Company (Years) Turnover (%) Employees Number of Employees Primary/Master Servicing: Senior Management Middle Management Servicing Staff Total Special Servicing: Senior Management Middle Management Asset Managers Servicing Staff Total Average Training Hours Per Employee Per Year USAP/Regulation AB Audits Completed by Ernst & Young. Servicing System McCracken Financial s Strategy, version 14B, fix 2. Total Servicing Portfolio Unpaid Principal Balance (UPB) ($ Mil.) 100,585.9 No. of Loans 11,181 Master and Primary Servicing Portfolio Special Servicing Portfolio (As of June 30, 2012) (As of June 30, 2012) CMBS Portfolio CMBS Portfolio Primary Servicing: Named Special Servicing: No. of Transactions Primary Servicer 101 No. of Transactions 26 UPB ($ Mil.) 59,319.3 UPB ($ Mil.) 13,874.2 No. of Loans 6,764 No. of Loans 2,356 Active Special Servicing, Not Including REO: Master Servicing UPB ($ Mil.) No. of Transactions Master Servicer 101 No. of Loans 90 UPB ($ Mil.) 65,693.0 REO: No. of Loans 7,352 UPB ($ Mil.) 12.5 No. of Primary Servicers Overseen 24 No. of Loans 4 Non-CMBS Portfolio Non-CMBS Portfolio UPB ($ Mil.) 29,848.0 Named Special Servicing: No. of Loans 3,433 UPB ($ Mil.) 1,701.1 No. of Loans 821 Active Special Servicing, Not Including REO: UPB ($ Mil.) No. of Loans 504 REO: UPB ($ Mil.) 4.8 No. of Loans 3 N.A. Not applicable. REO Real estate owned. Non-CMBS Resolutions $ Mil. No. of Loans Loans Resolved Since Inception 1, Loans Resolved Past 12 Months KeyBank Real Estate Capital 13

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Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third-party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch s ratings should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this report is provided as is without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. KeyBank Real Estate Capital 14