After enduring a round of downgrades on residential subprime-mortgage backed bonds, at least one credit-rating agency is trying to avoid similar fallout on the commercial mortgage side.

Standard & Poor’s Rating Services has undertaken a study to assess how commercial mortgage-backed securities (CMBS) would perform under various stressed conditions, according to Lisa Sarajian, a managing director with the New York-based ratings agency’s structured finance group.

Speaking at a credit financing session at the National Association of Real Estate Investment Trust’s Investor Forum in New York this week, Sarajian said S&P is looking closely into bonds issued between 2005 and 2007, years of particularly exuberant commercial real estate lending.

“Fundamentals look relatively good going into what could be a recession,” Sarajian said, adding that hotel properties appear the most vulnerable. There is also some concern about retail and multifamily properties in cities impacted by the housing bubble, she said.

In such markets — including Phoenix, Las Vegas and Los Angeles — multifamily properties face competition from a shadow market of condominiums and single-family homes that have been converted to rentals. Likewise, retail properties face the prospect of reduced sales as consumers cut back on spending as their home values go down and they face mortgage-related problems.

As for the Standard & Poor’s study on CMBS, the ratings agency says it does not expect problems to manifest themselves “uniformly across all CMBS” from the 2005 to 2007 vintages. This means that “systemic downgrades” from these vintages are unlikely.

Bonds in the ‘BBB’ category may experience some downward ratings movement at some point over a 10-year period, which could lead to downgrades on mezzanine loan-backed bonds associated with these transactions.  Principal losses are likely to be “limited to speculative-grade tranches” for the vintages studied.

However, even low investment-grade classes from the recent 2006 and 2007 vintages are “susceptible to principal losses during periods of economic or market stress that exceed our expectations,” S&P reports.  And junior ‘AAA’ classes from these years are susceptible to downgrades under the same circumstances.

The ratings agency expects to complete its review process on CMBS from the 1999 to 2007 vintages by early fall.