Fitch Ratings has downgraded four subordinate classes of LB-UBS Commercial Mortgage Trust, series 2005-C7, and affirmed all investment grade classes. A detailed list of rating actions follows at the end of this press release.
The downgrades reflect an increase in Fitch expected losses across the pool since last review. Fitch modeled losses of 4.68% of the outstanding pool. The expected losses of the original pool are at 6.41%, which includes 2.92% in losses realized to date. Fitch has designated 33 loans (31.13%) as Fitch Loans of Concern, which include seven specially serviced loans (5.96%). Six of the Fitch Loans of Concern (21.12%) are within the transaction's top 15 loans by unpaid principal balance. Fitch expects that class K may eventually be fully depleted and class J partially depleted from losses associated with loans currently in special servicing.
As of the April 2012 distribution date, the pool's aggregate principal balance has reduced by 25.6% (including 2.92% of realized losses) to $1.74 billion from $2.34 billion at issuance. Most recently in April 2012, the Reckson Portfolio I loan (5.25% of original pool balance) had paid in full while in special servicing. No loans are currently defeased. Interest shortfalls are affecting classes H through T.
The largest contributor to Fitch-modeled losses is the Sarasota Main Plaza loan (2.03% of pool balance). The loan is secured by a 253,504 square foot (sf) mixed use (office/retail) building located in the downtown sector of Sarasota, FL. The property has experienced cash flow issues due to occupancy declines in addition to leases renegotiated at lower rents in order to retain existing tenants. The loan had transferred to the special servicer in December 2008 for imminent default. In April 2012 the servicer reported a modification of the loan has been approved, which includes an A-note & B-note split of the subject loan. The servicer is in process of finalizing the terms, and completing the necessary closing documentation.
The second largest contributor to Fitch-modeled losses is secured by a 73,235 sf retail center in Los Angeles, CA (1.15%) anchored by Marshalls (34.27% net rentable area [NRA]). Debt service coverage ratio (DSCR) for year end (YE) December 2011 improved to 1.20 times (x), compared to 1.18x and 0.87x at YE 2010 and YE 2009, respectively, however remains significantly below YE 2008 at 1.68x. Occupancy has remained unchanged at 100%. The decline in property performance is primarily attributed to a 47% increase in real estate taxes at YE 2009. The loan remains current as of the April 2012 remittance date.
The third largest contributor to Fitch-modeled losses is secured by a 64,242 sf mixed-use property (retail, office, and multifamily) in Palm Beach Gardens, FL. The loan had transferred to the special servicer in March 2010 for payment default. A note sale has been approved by the servicer, and the borrower is working to secure financing.
Fitch downgrades the following classes and assigns Recovery Estimates (REs) as indicated:
--$23.5 million class F to 'CCCsf' from 'B-sf'; RE 100%;
--$26.4 million class G to 'CCsf' from 'CCCsf'; RE 45%;
--$17.5 million class H to 'CCsf' from 'CCCsf'; RE 0%;
--$17.5 million class J to 'Csf' from 'CCsf'; RE 0%.
In addition, Fitch affirms the following classes and revises the Rating Outlooks as indicated:
--$43.4 million class A-2 at 'AAAsf'; Outlook Stable;
--$48 million class A-3 at 'AAAsf'; Outlook Stable;
--$79.2 million class A-AB at 'AAAsf'; Outlook Stable;
--$847.8 million class A-4 at 'AAAsf'; Outlook Stable;
--$88.2 million class A-1A at 'AAAsf'; Outlook Stable;
--$233.9 million class A-M at 'AAAsf'; Outlook Stable;
--$195.9 million class A-J at 'Asf'; Outlook Stable;
--$14.2 million class B at 'BBBsf'; Outlook to Stable from Positive;
--$35.2 million class C at 'BBB-sf'; Outlook Stable;
--$29.3 million class D at 'BBsf'; Outlook Stable;
--$23.5 million class E at 'Bsf'; Outlook Stable.
Class A-1 has repaid in full. Classes K through S will remain at 'Dsf', RE 0% due to realized losses. Fitch does not rate class T, which has also been reduced to zero due to realized losses.
Fitch also affirms the Outlooks of the following classes:
--$1 million class CM-1 at 'AAsf'; Outlook Stable;
--$5 million class CM-2 at 'Asf'; Outlook Stable;
--$956 thousand class CM-3 at 'A-sf'; Outlook Stable;
--$3 million class CM-4 at 'BBBsf'; Outlook Stable.
The CM rake classes represent the B-note for the Cherryvale Mall. The $73.6 million A-note is included in the pooled portion of the trust. Fitch does not rate the SP-1 through SP-7 rake classes, which are specific to the Station Place I $63 million B-note. A $16.8 million A-note for Station Place I is included in the pooled portion of the trust.
Fitch had previously withdrawn the ratings on the interest-only classes X-CP and X-CL.
Additional information on Fitch's criteria is available in the Dec. 21, 2011 report, 'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions', which is available at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2011);
--'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Dec. 21, 2011).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569
Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=662869
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Fitch Ratings
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Benson Thomas, +1-212-908-0645
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or
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Britt Johnson,
+1-312-606-2341
Senior Director
or
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sandro.scenga@fitchratings.com