Fitch Affirms MSCI 2006-XLF

CHICAGO--()--Fitch Ratings has affirmed Morgan Stanley Capital I Inc. (MSC 2006-XLF) commercial mortgage pass-through certificates, series 2006-XLF. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Affirmations reflect improving performance subsequent to the rebranding and renovation of the hotel.

There is one remaining loan in the transaction. The ResortQuest Kauai, interest-only loan is collateralized by a 311-room full-service hotel located on a fee-simple beach front parcel of land in the city of Kapaa, along the east coast of the island of Kauai, HI. The hotel was rebranded as the Courtyard by Marriott Kauai at Coconut Beach subsequent to acquisition.

The property was sold in October 2010 and the note assumed for $38 million, which resulted in a $5.2 million realized loss to the N-RQK non pooled rake bond. In conjunction with the sale, the loan was modified with an extension of the maturity date to 2015 and the establishment of capex and debt service reserves. New sponshorship contributed an estimated $13 million to the renovation of the hotel.

Performance of the hotel has continued to improve as a result of the capital improvements and renovation. As of December 2013, net operating income grew to $2.7 million from $638,000 at year-end 2012. The manager expects continued cashflow growth and stabilization into 2015.

For December 2013, the hotel achieved TTM occupancy, ADR, and RevPAR of 80.0%, $123.78, and $99.07, respectively, compared to the prior year performance of 69.0%, $102.78, and $70.91. At issuance, the hotel had not reached stabilized levels due to extensive renovation occurring in 2003-2005 with reported TTM December 2005 occupancy, ADR, and RevPAR of 45.1%, $103.50, and $46.64, respectively. The hotel has yet to achieve the underwritten stabilized projections for occupancy, ADR, and RevPAR of 81.1%, $165 and $134.

RATING SENSITIVITY

The rating of investment-grade class J is expected to remain stable throughout the remaining life of the transaction. Should performance of the property not reach stabilization, a downgrade to class K is possible. The classes with realized losses will remain at 'D'.

Fitch affirms the ratings on the following pooled certificates:

--$22.1 million class J at 'BBBsf'; Outlook Stable;
--$6.8 million class K at 'Bsf'; Outlook Negative;
--$5.1 million class L at 'Dsf; RE 0%.

Fitch affirms the ratings on the following non-pooled component certificates:

--$4 million class N-RQK at 'Dsf'; RE 0%.

Classes A-1 through H, N-SDF, N-LAF and O-LAF have been paid in full. The ratings of interest-only classes X-1 and X-2 were previously withdrawn. Class M, currently rated 'Dsf'; RE 0%, has been reduced to zero due to realized losses.

Additional information on Fitch's criteria for analyzing large loans in U.S. commercial mortgage transactions is available in the Sept. 20, 2013 report, Criteria for Analyzing Large Loans in U.S. Commercial Mortgage 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.

Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions' (Sept. 20, 2013).

Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718468

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826631
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Contacts

Fitch Ratings
Primary Analyst:
David Ro, +1-312-368-3132
Director
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
David Ro, +1-312-368-3132
Director
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com