OREANDA-NEWS. Fitch Ratings has upgraded one and affirmed nine classes of Gramercy Real Estate CDO 2005-1, Ltd./LLC (Gramercy 2005-1). Fitch's performance expectation incorporates prospective views regarding commercial real estate market value and cash flow declines. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The actions reflect the substantial delevering of the capital structure that has occurred since the last rating action. Fitch's base case loss expectation is 45.1%.

Since the last rating action, 10 assets are no longer in the pool; six positions paid in full while four took partial to full losses totalling approximately \$23.7 million. Total paydown to class A-1 and A-2 from loan payoffs, scheduled amortization, and diverted interest since the last rating action was \$133.3 million.

The collateralized debt obligation (CDO) continues to become more concentrated with only 20 assets remaining in the transaction. Further, the CDO is currently undercollateralized by approximately \$77 million. As of the April 2015 trustee report, the CDO is failing one over-collateralization test resulting in the diversion of interest payments from classes J and below.

Commercial real estate loans (CREL) continue to comprise the majority of the collateral at 52.8% of the pool. Approximately 6.4% of the total collateral consists of whole loans or A-notes, while 19.4% are real estate owned (REO) assets, 17.3% are B-notes or rake bonds, and 9.7% mezzanine debt. Commercial mortgage-backed securities (CMBS) now represent 47.2% of the collateral compared to 36% at the last rating action. Since last review, the average Fitch derived rating for the underlying CMBS collateral declined to 'B-'from 'B/B-'. The combined percentage of defaulted loans and assets of concern is in line with last review at 50%.

Under Fitch's methodology, approximately 68.7% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. Modeled recoveries are 34.3%.

The largest component of Fitch's base case loss expectation is REO land for development (19.4% of the portfolio) located within the Coyote Valley of southern San Jose, CA. The original business plan was to market the 279 developable acres for lot sales; however, to date, no sales have occurred. The loan matured in July 2012 and the lender took title via a deed in lieu of foreclosure. Fitch modeled a substantial loss on this property in its base case scenario.

The next largest component of Fitch's base case loss expectation is the modeled losses on the CMBS bond collateral.

The third largest component of Fitch's base case loss expectation is a defaulted junior mezzanine loan (9.7%) secured by ownership interests in a multifamily property located in New York, NY. The property contains over 11,000 residential units and approximately 120,000 square feet of office and retail space. Fitch modeled no recovery on this highly leveraged mezzanine position.

The transaction was analyzed according to the 'Surveillance Criteria for U.S. CREL CDOs', which applies stresses to property cash flows and debt service coverage ratio tests to project future default levels for the underlying CREL portfolio. Recoveries are based on stressed cash flows and Fitch's long-term capitalization rates. The rated securities (CUSIP) portion of the collateral was analyzed according to the 'Global Rating Criteria for Structured Finance CDOs', whereby the default and recovery rates are derived from Fitch's Structured Finance Portfolio Credit Model. Rating default rates and rating recovery rates from both the CREL and CUSIP portions of the collateral are then blended on a weighted average basis. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various defaults timing and interest rate stress scenarios as described in the report 'Global Rating Criteria for Structured Finance CDOs'. The breakeven rates for classes A-2 through E pass the cash flow model at or above the ratings listed below. Upgrades to classes B through E were limited due to the increasing concentration of the portfolio.

The Stable and Positive Outlooks on classes A-2 through E generally reflect the classes' senior position in the capital structure and/or cushion in the modeling.

The 'CCCsf' ratings for classes F through K are based on a deterministic analysis that considers Fitch's base case loss expectation for the pool and the current percentage of defaulted assets, and Fitch assets of concern factoring in anticipated recoveries relative to each classes credit enhancement.

Gramercy 2005-1 is a commercial real estate CDO managed by CWCapital Investments LLC, which became the successor collateral manager in March 2013.

In December 2011, \$6.1 million of notes were surrendered to the trustee for cancellation, including partial amounts of classes E, F, G and H.

RATING SENSITIVITIES

If the collateral continues to repay at or near par, class B may be upgraded. Upgrades to classes C through E may be limited due to the increasing concentration of the pool.

The distressed classes F through K are subject to downgrade as losses are realized or if realized losses exceed Fitch's expectations.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch has upgraded the following class:
--\$1.3 million class A-2 to 'AAAsf' from 'BBBsf'; Outlook Stable;.

Fitch has affirmed and revised Rating Outlooks on the following classes as indicated:

--\$102.5 million class B at 'BBsf'; Outlook to Positive from Stab47 million class C at 'Bsf'; Outlook Stable;
--\$12.5 million class D at 'Bsf'; Outlook Stable;
--\$14.9 million class E at 'Bsf'; Outlook to Stable from Negative;
--\$15 million class F at 'CCCsf; RE 90%;
--\$15.5 million class G at 'CCCsf'; RE 0%;
--\$27 million class H at 'CCsf'; RE 0%;
--\$55.5 million class J at 'Csf'; RE 0%;
--\$43 million class K at 'Csf'; RE 0%.

Classes A-1 paid in full. Fitch does not rate the preferred shares.