Commercial real estate in smaller cities is riskier than that in larger cities, even after accounting for lower debt levels in larger cities, according to a default and delinquency study by Moody's Investors Service.The study, covering the period from 1995 to 2003, looked at about 40,000 commercial real estate loans (valued at about $330 billion) backing commercial mortgage-backed securities deals. Moody's said it considered the possibility that loans in larger cities perform better because of a different property type distribution -- for example, that bigger cities might have more institutional-quality office buildings. But Sally Gordon, the Moody's analyst who did the study, said that doesn't appear to be the case. "The answer is [that] other than the 10 largest cities having a disproportionate share of offices, there does not appear to be a profound difference in the property-type composition of large and small MSAs," she said. Another finding of the study is that CMBS loan delinquencies do not follow the "hill-shaped curve" pattern of delinquency common in life insurance company loans, with delinquencies peaking after three to five years and declining thereafter. Moody's can be found online at http://www.moodys.com.

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