NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded three and affirmed two classes of Lehman Brothers Floating Rate Commercial Mortgage Trust 2007-LLF C5 (LB 2007-LLF C5). A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The upgrades reflect the increased credit enhancement from the deleveraging of the transaction due to four loan repayments totaling $86 million since Fitch's last rating action.
Three loans remain in the transaction, two of which are in special servicing (71% of pool). All of the remaining loans have been modified and extended beyond their original maturity dates. One loan (29%) has a final maturity in October 2014 and two loans (71%) have fully extended maturities in June 2015.
The largest loan, the Normandy Office Portfolio (56.5% of pool), is secured by a portfolio of eight office properties and two industrial properties totaling 1.39 million square feet (sf) located in Massachusetts and New Jersey.
The portfolio was first transferred to special servicing in October 2011 due to imminent default. The loan was modified in December 2012 and returned to the master servicer in March 2013. Terms of the modification included a maturity date extension to June 9, 2014 with a one-year extension option subject to an 8.5% debt yield, the contribution of $12 million in new equity by the borrower, and the sweeping of excess cash flow into the leasing and capital expenditures (capex) reserve account until it reaches $10 million.
The loan transferred back to special servicing in December 2013 due to imminent default. The loan continues to pay as agreed, but the special servicer indicated there are insufficient funds in escrow to cover tenant improvements and leasing commissions in connection with the recent signing of several new leases. As of the March 2014 rent roll, the property was 75.2% occupied, an improvement from 70.5% at year-end (YE) 2012, but still remaining below the 89% reported at issuance. According to REIS and as of fourth quarter 2013, the underlying property submarkets reported vacancies between 14.1% and 28.1%. As of the March 2014 rent roll, in-place base rents were approximately $19.36 per square foot (psf) compared to underlying submarket asking rents in the $20.60 psf to $29.55 psf range, according to REIS.
The borrower requested a modification and discussions are ongoing. In early April 2014, one of the underlying properties in the portfolio, the Westford Corporate Center, was released. Proceeds from the release of this property are expected to be applied on the upcoming distribution date. The special servicer indicated the remainder of the portfolio is in the process of being listed for sale.
The second largest loan, the Interstate North Office Park (29%), is secured by a 975,999 sf office property located in Atlanta, GA.
The loan was previously in special servicing due to imminent maturity default. The loan was modified in April 2012 and was subsequently returned to the master servicer. Terms of the modification included a maturity date extension to Oct. 6, 2014, a $3.5 million paydown of the loan by the borrower, the funding of a $1.5 million leasing and capex reserve, and the sweeping of excess cash flow into the leasing and capex reserve account until it reaches $10 million. In addition, subsequent to the closing of the loan modification, the mezzanine lender took title to the property in lieu of a mezzanine foreclosure.
As of the December 2013 rent roll, the property was 79% occupied compared to 90.6% reported at issuance. Approximately 6.2% of the property square footage rolls during 2014 and 13.1% in 2015. The property's three largest tenants (comprising 35% of the property square footage) all have lease expirations beyond the loan's October 2014 maturity. According to REIS and as of fourth quarter 2013, the Cumberland/1-75 office submarket reported a vacancy of 17.1%.
The third largest loan, the Sheraton Old San Juan (14%), is secured by the leasehold interest in a 240-key hotel property located in San Juan, Puerto Rico.
The loan was transferred to special servicing in November 2011 due to imminent default. A loan modification closed in February 2013. At the time of modification, the maturity date was extended to June 9, 2013 with four additional six-month extension options. The special servicer indicated the loan automatically extends as long as the borrower certifies there is no Event of Default every six months. The loan is currently on the second extension option until June 9, 2014. The third extension option would push the maturity date to Dec. 9, 2014 with the final and fully extended maturity date on June 9, 2015.
According to the May 2013 Smith Travel Research (STR) report, the property reported occupancy, average daily rate, and revenue per available room (RevPAR) of 80.7%, $130.45, and $105.22, respectively, for the trailing-12 months (TTM) ending May 2013. The property performs below both its beachfront and non-beachfront competitive set in terms of RevPAR penetration at 70.4% and 96%, respectively, for the TTM May 2013 period, according to STR. Property net operating income for 2013 of $1.37 million dropped from $1.99 million in 2012 due to a decline in revenues and a higher operating expense ratio.
The rated classes are highly dependent upon the performance of the remaining three loans. Fitch analyzed each loan individually and ran a scenario that assumed the loan maturing in 2014 would pay off and two loans would be remaining in the pool. The outcome of this scenario and the impact to the trust was considered in Fitch's rating recommendations.
The Rating Outlooks for classes E through G are expected to remain Stable. The distressed classes (those rated below 'B') are expected to be subject to further downgrades as losses are realized.
Fitch has upgraded the following classes as indicated:
--$4.2 million class E to 'AAAsf' from 'Asf'; Outlook Stable;
--$28.8 million class F to 'Asf' from 'BBsf'; Outlook Stable;
--$28.8 million class G to 'BBBsf' from 'Bsf'; Outlook Stable.
Fitch has affirmed the following classes as indicated:
--$51.8 million class H at 'CCCsf'; RE 100%;
--$57.5 million class J at 'Dsf'; RE 0%.
Classes A-1, A-2, A-3, B, C, D, and X-1 have paid in full. Fitch does not rate classes CGC, CPE, CQR-1, CQR-2, DMC-1, DMC-2, FBS-1, FBS-2, FTC-1, FTC-2, HAR-1, HAR-2, HRH, HSS, INO, JHC, LCC, MVR, NOP-1, NOP-2, NOP-3, OCS, ONA, OWS-1, OWS-2, PHO, SBG, SFO-1, SFO-2, SFO-3, SFO-4, SFO-5, TSS-1, TSS-2, UCP, VIS, and WHH. Fitch previously withdrew the rating of the interest-only class X-2.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (June 12, 2013);
--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions' (Sept. 20, 2013).