Fitch Ratings has downgraded 13 classes of Morgan Stanley Capital I Trust (MSCI) Series 2007-IQ13 commercial mortgage pass-through certificates. In addition, Fitch has assigned or revised Rating Outlooks and Loss Severity (LS) ratings, as applicable. A detailed list of rating actions follows at the end of this press release.
The downgrades are the result of Fitch's loss expectations on specially serviced loans as well as prospective views regarding commercial real estate market value and cash flow declines. Fitch forecasts potential losses of 9.6% for this transaction, should market conditions not recover. Today's rating actions are based on losses of 9.0% including 100% of the losses associated with term defaults and any losses associated with maturities within the next five years. Given the significant term to maturity, Fitch's actions only account for 25% of the losses associated with maturities beyond five years. The bonds with Negative Outlooks indicate classes that may be downgraded in the future should full potential losses be realized.
Fitch analyzed the transaction and calculated expected losses by assuming cash flows on each of the properties decline 15% from year-end (YE) 2007 and property values decline 35% from issuance. These loss estimates were reviewed in more detail for loans representing 60.4% of the pool and, in certain cases, revised based on additional information and/or property characteristics.
Approximately 19% of the mortgages are scheduled to mature within the next five years as follows: 9.1% in 2011, 8.2% in 2012, and 1.6% in 2014. In 2015 and 2016, 77% of the pool is scheduled to mature.
Fitch identified 21 Loans of Concern (30.8%) within the pool, seven of which (4.4%) are specially serviced. None of the specially serviced loans are within the transaction's top 15 loans, which comprise 53.3% of the total pool's unpaid principal balance. (Note: Fitch considers the transaction's top 15 loan concentration to include one portfolio of four cross-collateralized and cross-defaulted loans, in addition to 14 other individual loans, as ranked by unpaid principal balance.)
Three of the top 15 loans (23.7% of the pool) are expected to default during the term, with loss severities ranging from approximately 14% to 33%. Of the top 15 loans, the largest contributors (by loan balance) to maturity and term losses are as follows: 75-101 Federal Street (13.0%), RREEF Portfolio (9.1%) and Northridge I (1.7%).
The 75-101 Federal Street loan (13.0%) is secured by two inter-connected office buildings comprising a total of 811,687 square feet (sf) and 196 below-grade parking spaces, located in Boston's Financial District. The rent roll consists of over 80 tenants, none of which represent more than 7% of the space. As of Aug. 24, 2009, occupancy had declined to 79.8% (81.2% leased), from 90.7% at issuance.
At issuance, the in-place underwritten debt service coverage ratio (DSCR) for 75-101 Federal Street was 1.05 times (x), while the Fitch stressed DSCR was 0.86x. The lender expected that performance would improve as space leased at below-market rents were increased to market rates upon lease rollover. However, revenues have since declined approximately 15% due to falling occupancy, and the property's reported net cash flow is insufficient to service the debt. A cash flow sweep was triggered in December 2008, and approximately $139,000 has been collected. As of Sept. 9, 2009, approximately $3.6 million of reserves were in place. The loan sponsor is Aslan Realty Partners III, LLC, an investment vehicle of Transwestern Investment Company. Upon acquisition, the borrower contributed approximately $64 million in cash equity (23%).
The RREEF Portfolio loan (9.1%) is secured by a portfolio of eight class A and class B multifamily properties comprising a total of 2,580 units, which are located in five metropolitan areas throughout the Northern Virginia and Maryland suburbs. As of year-end 2008, the portfolio was approximately 94.1% occupied in the aggregate, compared to 88.3% at issuance. At issuance, the loan was underwritten by the lender to 1.00x in-place debt service coverage. Performance remains in line with Fitch's expectation at issuance, which was based on in-place tenancy and cash flow; the Fitch stressed DSCR was 0.79x and the Fitch stressed loan-to-value ratio (LTV) was 152.0% when the transaction closed. However, at year-end 2008 the property's reported net cash flow remained approximately 6% below the lender's stabilized figure (which was expected to be achieved by second-quarter 2007). The loan sponsor, RREEF/Bainbridge Companies LLC, contributed approximately $134 million in cash equity at acquisition, excluding closing costs (25%). In addition to the two notes totaling $147 million in the subject trust, the portfolio also secures pari passu notes outside of the trust totaling $263 million.
The Northridge I loan (1.7%) is secured by a six-story class A office property located in the Herndon submarket of Northern Virginia. The rent roll consists of seven tenants, the largest of which is General Services Administration (42.1%, rated 'AAA' by Fitch). As of the most recent rent roll (June 30, 2009), the property had remained 99.5% occupied; however, Time Warner Cable (33.7%) vacated upon its recent expiration, indicating that the property is now 65.8% occupied. Based on the current rent roll, the Fitch-calculated DSCR is approximately 0.63x when Time Warner is excluded. According to servicer reports, the borrower has stated that there will be limited leasing prospects until the end of the year. Significant additional rollover occurs in 2011, the year prior to loan maturity, when leases representing 62.3% of the net rentable area expire. The loan sponsor, Normandy Real Estate Partners, contributed approximately $6.3 million of cash equity at acquisition, excluding closing costs (19%).
Fitch downgrades, removes from Rating Watch Negative, and assigns LS ratings and Negative Outlooks to the following classes:
--$149.6 million class A-J to 'BB/LS-4' from 'AAA';
--$32.8 million class B to 'B-/LS-5' from 'AA';
--$16.4 million class C to 'B-/LS-5' from 'AA-';
--$16.4 million class D to 'B-/LS-5' from 'A';
--$14.3 million class E to 'B-/LS-5' from 'A-';
--$18.4 million class F to 'B-/LS-5' from 'BBB+';
--$14.3 million class G to 'B-/LS-5' from 'BBB';
--$18.4 million class H to 'B-/LS-5' from 'BBB-';
--$8.2 million class J to 'B-/LS-5' from 'BB+';
--$2 million class K to 'B-/LS-5' from 'BB';
--$4.1 million class L to 'B-/LS-5' from 'BB-';
--$6.1 million class M to 'B-/LS-5' from 'B+';
--$2 million class N to 'B-/LS-5' from 'B'.
Fitch affirms, assigns an LS rating, and revises the Rating Outlook of the following class:
--$163.9 million class A-M at 'AAA/LS-3'; Outlook to Negative from Stable.
Additionally, Fitch affirms the following classes, assigns LS ratings and maintains a Stable Outlook:
--$29.7 million class A-1 at 'AAA/LS-2';
--$470.6 million class A-1A at 'AAA/LS-2';
--$114.8 million class A-2 at 'AAA/LS-2';
--$64 million class A-3 at 'AAA/LS-2';
--$448.8 million class A-4 at 'AAA/LS-2';
--Interest-only class X at 'AAA';
--Interest-only class X-Y at 'AAA'.
The $6.1 million class O and the $18.4 million class P are not rated by Fitch.
Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 8, 2009 report, 'Surveillance Methodology for Recent Vintage U.S. CMBS,' which is available at 'www.fitchratings.com' under the following headers:
Structured Finance then CMBS then Criteria Reports
Fitch will release a report titled 'Morgan Stanley Capital I Inc., Series 2007-IQ13' that will contain a graph of revised loss expectations for the transaction at 'www.fitchratings.com' which will be available under the following headers:
Structured Finance then CMBS then Special Reports
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings, New York
Lindsay Weichert, 212-908-0398
Adam
Fox, 212-908-0869
or
Media Relations:
Sandro Scenga,
212-908-0278
Email: sandro.scenga@fitchratings.com
