NEW YORK--()--Fitch Ratings has downgraded 10 and affirmed 13 classes of ML-CFC Commercial Mortgage Trust, series 2007-8 (ML-CFC 2007-8), commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.
The downgrades reflect an increase in Fitch-modeled losses across the pool due to further deterioration of loan performance, most of which involves significantly higher losses on the specially serviced loans resulting from updated valuations, as well as continued underperformance for several loans in the top 15. Fitch modeled losses of 18.4% of the remaining pool; modeled losses on the original pool balance total 19.6%, including losses already incurred. Modeled losses on the original pool have increased from 15.8% at Fitch's last rating action.
The Negative Outlook on classes A-3 and AM reflects the uncertainty and timing surrounding the workout of many of the specially serviced assets and the possibility for further underperformance on loans in the top 15. The Negative Outlook on the multifamily-directed classes A-1A and AM-A reflects the possibility for continued underperformance of the multifamily collateral in the pool. The multifamily collateral comprises 32.1% of the pool and includes the largest loan in the pool (15.9%), which is currently in special servicing. A significant portion of the multifamily collateral is either in special servicing or is classified as a Fitch Loan of Concern (totaling 25.4%).
As of the January 2013 distribution date, the pool's aggregate principal balance has been reduced by 14.2% to $2.09 billion from $2.44 billion at issuance. Approximately $252.1 million (10.4%) were principal paydowns and approximately $93.9 million (3.9%) were realized losses. No loans have defeased since issuance. Cumulative interest shortfalls total $20.1 million and are currently affecting classes AJ through T. There is a lack of upcoming loan maturities as 93% of the pool mature in 2017 or later.
Fitch has identified 68 loans (54.4%) as Fitch Loans of Concern, which includes 12 specially serviced assets (23.5%). Eight (5.5%) of the loans in special servicing are classified as in foreclosure (1.2%) or real-estate owned (REO: 4.3%). Four of the top 15 loans (26.7%) are or have been in special servicing, including one loan (6.6%) which has been modified and returned to the master servicer. Thirteen of the top 15 loans (38.1%) have Fitch loan-to-values greater than 90%. These loans may experience difficulties at the time of refinancing.
The largest contributors to modeled losses are three (23.2%) of the top 15 loans in the pool, two (18.4%) of which are specially serviced.
The largest contributor to modeled losses is the Empirian Multifamily Portfolio Pool 2 loan (15.9%). The loan transferred to special servicing in December 2010 for imminent default. The loan was originally secured by a portfolio of 73 multifamily properties (totaling 6,892 units) located across eight states. As of October 2012, the reported portfolio occupancy was 76.3%. Current portfolio cash flow is estimated to be down by greater than 30% since issuance.
In August 2012, the lender foreclosed upon 14 of the properties (1,218 units) in the portfolio, all of which are located in Georgia. In December 2012, the lender foreclosed upon another property (101 units) located in Westland, MI. The lender is continuing to pursue foreclosure, while discussions with the borrower continue regarding potential alternatives for the remainder of the portfolio. A recent appraisal from January 2013 indicates a value significantly below the total loan exposure amount. Fitch will continue to monitor the foreclosure progress on the remainder of the portfolio.
The next largest contributor to modeled losses is the Executive Hills Portfolio loan (4.8%). The loan is secured by a portfolio of nine office properties, all of which are located in the Kansas City MSA. Five of the properties are located in Overland Park, KS and four are located in Kansas City, MO. The submarkets that the properties are located in reported high vacancies ranging from 13%-16%, according to REIS as of the fourth quarter 2012.
Portfolio performance has been suffering with declining occupancy. As of September 2012, the portfolio occupancy was 65.8%, down from 79.4% at year-end (YE) 2011 and 92.3% at issuance. The individual properties have occupancies ranging from 0% to 95.7%. One property is fully vacant, while another is below 10% occupied. Approximately 45% of the portfolio square footage rolls prior to the loan's July 2017 maturity. According to the September 2012 rent roll, upcoming lease rollovers for the next three years include: 2013 (7.4%), 2014 (4.9%), and 2015 (7.8%).
The portfolio's debt service coverage ratio (DSCR), on a net operating income (NOI) basis remains below 1.0x, significantly down from the 1.65x reported at issuance. For the first nine months of 2012, the NOI DSCR was 0.97x compared to 0.82x and 0.98x at YE 2011 and YE 2010, respectively.
The third largest contributor to modeled losses is the Towers at University Town Center loan (2.5%). The loan was transferred to special servicing in July 2010 for delinquent payments. The asset is a 224 unit student housing property located in Hyattsville, MD. The asset became REO in October 2012. As of July 2012, the property was 92% occupied. A receiver and a new property manager are both in place for the asset.
Fitch has downgraded and revised Rating Outlooks as indicated:
--$655.8 million class A-3 to 'AAsf' from 'AAAsf'; Outlook to Negative from Stable;
--$627.4 million class A-1A to 'AAsf' from 'AAAsf'; Outlook to Negative from Stable;
--$126.9 million class AM to 'Bsf' from 'BBBsf'; Outlook Negative;
--$116.6 million class AM-A to 'Bsf' from 'BBBsf'; Outlook Negative;
--$109.4 million class AJ to 'CCsf' from 'CCCsf'; RE 0%;
--$100.6 million class AJ-A to 'CCsf' from 'CCCsf'; RE 0%;
--$12.7 million class B to 'Csf' from 'CCCsf'; RE 0%;
--$39.6 million class C to 'Csf' from 'CCsf'; RE 0%;
--$27.4 million class D to 'Csf' from 'CCsf'; RE 0%;
--$9.1 million class E to 'Csf' from 'CCsf'; RE 0%.
In addition, Fitch has affirmed the following classes as indicated:
--$103.9 million class A-2 at 'AAAsf'; Outlook Stable;
--$65.5 million class A-SB at 'AAAsf'; Outlook Stable;
--$18.3 million class F at 'Csf'; RE 0%;
--$21.3 million class G at 'Csf'; RE 0%;
--$33.5 million class H at 'Csf'; RE 0%;
--$21.7 million class J at 'Dsf'; RE 0%;
--$0 class K at 'Dsf'; RE 0%;
--$0 class L at 'Dsf'; RE 0%;
--$0 class M at 'Dsf'; RE 0%;
--$0 class N at 'Dsf'; RE 0%;
--$0 class P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%;
--$0 class S at 'Dsf'; RE 0%.
The class A-1 certificates have paid in full. Fitch does not rate class T. Fitch previously withdrew the rating on the interest-only class X.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 18, 2012 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', 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' (June 6, 2012);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 18, 2012).
Applicable Criteria and Related Research:
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
Global Structured Finance Rating Criteria