Fitch Downgrades COBALT 2007-C3; Affirms Super Sr and Mezzanine AAA Classes

NEW YORK--(BUSINESS WIRE)--Fitch Ratings downgrades and removes from Rating Watch Negative 14 classes of COBALT CMBS Commercial Mortgage Trust 2007-C3 commercial mortgage pass-through certificates, as a result of increases in expected losses on the specially serviced loans and other loans in the pool. A detailed listing of rating actions follows at the end of this release.

The downgrades reflect an increase in Fitch modeled losses across the pool, which includes assumed losses on loans in special servicing and on performing loans with declines in performance indicative of a higher probability of default. Fitch modeled losses of 11.1% (11.3% cumulative transaction losses which includes losses realized to date). Fitch expects classes M through P to be fully depleted by losses on specially serviced loans and class L to be significantly affected. As of December 2010, there are cumulative interest shortfalls in the amount of $1.9 million currently affecting classes O and P.

As of the December 2010 distribution date, the pool's aggregate principal balance has been paid down by 1.1% to $1.99 billion from $2.02 billion at issuance. There are no defeased loans.

Fitch has identified 32 loans (36.5%) as Fitch Loans of Concern, which includes 10 specially serviced loans (5.99%).

The largest contributor to losses is the Irvine EOP San Diego Portfolio loan (6.87%) which is collateralized by seven properties consisting of six class A and B office buildings and one single-tenant restaurant all located in San Diego, CA. The aggregate square footage for the portfolio is 380,954 square feet (sf). The portfolio was part of a 14-property, 1.9 million sf portfolio of office properties that The Irvine Company purchased from Equity Office Properties.

The loan remains current and is with the master servicer. Occupancy has deteriorated since origination (July 2007). As of June 2008 the portfolio's occupancy was at 88%, further declined to 69% in June 2009 and is currently at 65% as of September 2010. The most recently reported year-to-date debt service coverage ratio

(DSCR) as of September 2010 is 0.60 times (x). Borrower has stated that a new lease for approximately 24,000 sf has been signed and will commence in December 2010.

The second largest contributor to losses is the Arbor at Broadlands loan (2.52%) which is collateralized by a 240-unit multifamily property located in Ashburn, VA.

As of September 2010, the occupancy was 97% with a DSCR of 0.85x. Performance has remained relatively flat since year-end 2009 when occupancy was 97% with a DSCR of 0.81x. The low DSCR and high occupancy is due to an increase in concessions to retain tenants. The sponsors are Fannie Mae who has a 95% ownership interest along with Bozzutto & Associates with the remaining 5%. Fannie Mae has invested in excess of $17 million in this property. At issuance a $1.1 million debt service reserve was established and has now been fully depleted.

The third largest contributor to losses is the 2 Rector Street loan (5.01%) which is collateralized by a 417,473 sf class B office property. The property is located in Downtown Manhattan's City Hall District submarket of New York City.

This loan was previously in special servicing and returned to the master servicer in September 2010 upon completion of a modification of the loan resulting in a zero loss to the trust. A debt service reserve was established and as of Jan 4, 2011 the balance is $2.3 million. As of September 2010 the servicer reported DSCR to be 0.92x with occupancy of 71%. Occupancy has remained flat since June 2009 when the occupancy was reported at 71%.

In total, there are currently 10 loans (5.99%) in special servicing, which consists of four loans (1.45%) as real estate owned (REO), four loans (2.09%) in foreclosure, one loan (1.08%) that is 90 days delinquent and one loan (1.38%) that is current.

At Fitch's last review there were three loans (1.0%) in special servicing consisting of two loans (0.73%) that were 60 to 90 days delinquent and one loan (0.27%) that was current.

Fitch downgrades, removes from Rating Watch Negative and assigns Recovery Ratings, Loss Severity ratings and Outlooks to the following classes as indicated:

--$153.8 million class A-J to 'BBsf/LS4' from 'BBB-/LS4'; Outlook Negative;

--$40.3 million class B to 'B-sf/LS5' from 'BBsf/LS5'; Outlook Negative;

--$20.2 million class C to 'CCCsf/RR1' from 'BBsf/LS5';

--$25.2 million class D to 'CCCsf/RR1' from 'B-sf/LS5';

--$20.2 million class E to 'CCCsf/RR1' from 'B-sf/LS5';

--$25.2 million class F to 'CCCsf/RR1' from 'B-sf/LS5';

--$22.7 million class G to 'CCCsf/RR1' from 'B-sf/LS5';

--$25.2 million class H to 'CCCsf/RR1' from 'B-sf/LS5';

--$7.6 million class J to 'CCCsf/RR1' from 'B-sf/LS5';

--$5 million class K to 'CCsf/RR1' from 'B-sf/LS5';

--$10.1 million class L to 'CCsf/RR2' from 'B-sf/LS5';

--$5 million class M to 'Csf/RR6' from 'B-sf/LS5';

--$2.5 million class N to 'Csf/RR6' from 'B-sf/LS5';

--$5 million class O to 'Csf/RR6' from 'B-sf/LS5'.

Fitch affirms, removes from Rating Watch Negative and assigns a Loss Severity rating and Outlook to the following class as indicated:

--$201.7 million class A-M at 'AAAsf/LS4'; Outlook Stable.

Additionally, Fitch affirms the following classes, with a Stable Outlook:

--$5.9 million class A-1 at 'AAAsf/LS2'; Outlook Stable;

--$107.7 million class A-2 at 'AAAsf/LS2'; Outlook Stable;

--$93.9 million class A-3 at 'AAAsf/LS2'; Outlook Stable;

--$45.5 million class A-PB at 'AAAsf/LS2'; Outlook Stable;

--$783 million class A-4 at 'AAAsf/LS2'; Outlook Stable;

--$360 million class A-1A at 'AAAsf/LS2'; Outlook Stable;

Fitch does not rate class P. Fitch withdraws the ratings of the interest only class IO (For additional information, see 'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities', dated June 23, 2010.)

Additional information on Fitch's amended criteria for analyzing U.S. fixed rate CMBS is available in the Nov. 17, 2010 report, 'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions,' which is available at 'www.fitchratings.com' under the following headers:

Structured Finance then CMBS then Criteria Reports

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 13, 2010);

--'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Nov. 17, 2010).

Applicable Criteria and Related Research:

Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=574208

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326

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