Fitch Ratings has downgraded 13 classes of GE Commercial Mortgage Corporation (GECMC), series 2006-C1 commercial mortgage pass-through certificates. In addition, Fitch has assigned, maintained, 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 4.6% for this transaction, should market conditions not recover. Today's rating actions are based on losses of 3.1%, 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 56.7% of the pool and, in certain cases, revised based on additional information and/or property characteristics.
Approximately 8% of the mortgages are scheduled to mature or anticipated to repay within the next five years as follows: 2.9% in 2010, 3% in 2011, and 1.5% in 2013, and 0.6% in 2014. In 2015 and 2016, 91.8% of the pool is scheduled to mature or anticipated to repay.
Fitch identified 16 Loans of Concern (12.2%) within the pool, three of which (1.6%) are specially serviced. None of the specially serviced loans are within the transaction's top 15 loans, which comprise 51% of the total pool's unpaid principal balance. (Note: Fitch considers the transaction's top 15 loan concentration to include one portfolio of three 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 (6.5% of the pool) are expected to default during the term, with loss severities ranging from approximately 27% to 35%. Of the top 15 loans, the largest contributors (by loan balance) to maturity and term losses are as follows: 33 Washington Street (3.5%), Atlanta Mall Area Portfolio (1.9%) and Marriott Saratoga (1.1%).
The 33 Washington Street loan (3.5%) is secured by a 19-story class B office property with 240 parking spaces located in Newark's central business district. The property benefits from a convenient location with easy access to public transportation and major arterials. The largest tenants at the property include the State of New Jersey (23.4%; rated 'AA-' by Fitch) on seven separate leases with expirations ranging from month-to-month to 2017; Wilson, Elser, Moskowitz (11%), which has leased its space through 2010; and Commonwealth Business Media (10.2%), which has leases expiring in 2010 with two five-year renewal options remaining. There is significant near-term exposure to lease expirations, with leases corresponding to approximately 51.1% of the space expiring in 2010 and an additional 10.1% of the space expiring in 2011; the concentration consists of 10 separate tenants. As of June 2009, occupancy at 33 Washington Street had declined to 74.3% from 94.6% at issuance, attributable primarily to the downsizing of Horizon Blue Cross Blue Shield (to 10.1% from 29.1%) upon lease expiration.
The property has operated at its current occupancy level for over a year and continues to generate sufficient cash flow to service the debt, with a year-end 2008 servicer-reported debt servicer coverage ratio (DSCR) of 1.38 times (x), compared to a Fitch stressed DSCR of 1.03x at issuance. However, the loan has been designated as a Fitch Loan of Concern due to a lack of re-leasing progress coupled with the high concentration of lease expirations in the next two years (61%). Fitch anticipates that the loan will default during the term. As of the August remittance, approximately $1.6 million of reserves were available for leasing costs.
The Atlanta Mall Area Portfolio loan (1.9%) is secured by seven retail buildings comprising a total of 158,297 square feet (sf), which are located across two submarkets of Atlanta, GA. The properties were developed between 2000 and 2005, and are located adjacent to super-regional malls with high visibility and access to major highways. The combined rent roll consists of 13 tenants, the largest of which include hhgregg (19.2%), Georgia Backyard (15.8%), and Bassett Furniture Industries (7.6%) which are operating on leases expiring 2018, 2020, and 2014, respectively. Bassett has vacated the property but continues to pay rent.
As of August 2009, the Atlanta Mall Area properties were 61.8% occupied and 69.4% leased, from 97.1% at year-end 2008 and 98.4% at issuance. According to a rent roll provided at issuance, each of the five tenants which vacated did so prior to expiration of the lease term. The tenant roster generally consists of discretionary retailers in businesses such as furniture, electronics, mattress, and linens. According to the master servicer, the borrower has stated that there are currently negotiations ongoing with or letters of intent signed by prospective tenants interested in approximately 15% of the space. Scheduled lease expirations are minimal during most years of the remaining loan term; the highest scheduled rollover occurs in 2012, when 11.3% of the space expires. Approximately 8.2% of the rent roll expires in the next two years.
The most recent servicer-reported DSCR was 1.22x as of year-end 2008, based on cash flows received when occupancy stood at approximately 97%; this compares to a Fitch stressed DSCR of 1.03x at issuance. Based on revenues expected from the most recent rent roll, Fitch estimates a current DSCR of approximately 0.72x on a net operating income (NOI) basis. The loan has been designated a Fitch Loan of Concern. Due to declining performance at the property, Fitch anticipates that the loan will default during the term. As of the September remittance, approximately $209,000 in reserves ($3.46 per sf of vacant space) were available for leasing costs.
The Marriott Saratoga loan (1.1%) is secured by a 146-key limited service hotel located in Saratoga Springs, NY which was constructed in 2004. Amenities at the property are typical of the competitive set. The most recently reported occupancy and revenue per available room (RevPAR) as of year-end 2008 were 57.6% and $86.9, respectively. While underwritten cash flows proved to be in line with 2006 and 2007 servicer-reported levels, property performance deteriorated in 2008. The year-end 2008 reported net cash flow declined by 30% over that of the previous year, reportedly due to a decrease in convention activity and business travel within the market. With a reported DSCR of 1.10x on a NOI and 0.94x on a net cash flow basis, the loan is considered a Fitch Loan of Concern.
Due to the failure of the property's reported cash flows to service the debt, Fitch anticipates that the Marriott Saratoga loan will default during the term. As of the September remittance, reserves in place included a $237,000 seasonality reserve and $500,000 available for replacement costs.
Fitch downgrades, removes from Rating Watch Negative, and assigns LS ratings to the following classes:
--$14.1 million class H to 'B-/LS5' from 'BBB-'; Outlook Negative;
--$6 million class J to 'B-/LS5' from 'BB+'; Outlook Negative;
--$6 million class K to 'B-/LS5' from 'BB'; Outlook Negative;
--$6 million class L to 'B-/LS5' from 'BB-'; Outlook Negative;
--$2 million class M to 'B-/LS5' from 'B+'; Outlook Negative;
--$4 million class N to 'B-/LS5' from 'B'; Outlook Negative.
Fitch downgrades, assigns LS ratings and revises Rating Outlooks on the following classes:
--$146.8 million class A-J to 'A/LS3' from 'AAA'; Outlook to Negative from Stable;
--$36.2 million class B to 'A/LS4' from 'AA'; Outlook to Negative from Stable;
--$14.1 million class C to 'A/LS5' from 'AA-'; Outlook to Negative from Stable;
--$24.1 million class D to 'BBB-/LS5' from 'A'; Outlook to Negative from Stable;
--$14.1 million class E to 'BB/LS5' from 'A-'; Outlook to Negative from Stable;
--$14.1 million class F to 'BB/LS5' from 'BBB+'; Outlook to Negative from Stable;
--$14.1 million class G to 'B/LS5' from 'BBB'; Outlook to Negative from Stable.
Additionally, Fitch affirms and assigns LS ratings, as applicable, to the following classes:
--$22.5 million class A-1 at 'AAA/LS1'; Outlook Stable;
--$54.4 million class A-2 at 'AAA/LS1'; Outlook Stable;
--$47.2 million class A-3 at 'AAA/LS1'; Outlook Stable;
--$53.2 million class A-AB at 'AAA/LS1'; Outlook Stable;
--$620.1 million class A-4 at 'AAA/LS1'; Outlook Stable;
--$293.2 million class A-1A at 'AAA/LS1'; Outlook Stable;
--$160.9 million class A-M at 'AAA/LS3'; Outlook Stable;
--Interest-only class X-W at 'AAA'; Outlook Stable.
Lastly, Fitch affirms, removes from Rating Watch Negative and assigns an LS rating to the following:
--$2 million class O at 'B-/LS5'; Outlook Negative.
The $18.1 million class P is 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 on Fitch's web site at 'www.fitchratings.com' under the following headers:
Structured Finance then CMBS then Criteria Reports
Fitch will release a report titled 'GE Commercial Mortgage Corporation, Series 2006-C1' 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
