CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded five classes and affirmed 15 classes of Morgan Stanley Capital I Trust (MSC 2007-IQ16) commercial mortgage pass-through certificates series 2007-IQ16. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades are a result of higher expected losses primarily associated with deteriorating values of real estate owned (REO) assets in special servicing. The affirmations reflect sufficient credit enhancement of the remaining classes relative to Fitch's expected losses. Fitch modeled losses of 14.3% of the remaining pool; expected losses on the original pool balance total 15.7%, including $102.8 million (4% of the original pool balance) in realized losses to date. Fitch has designated 59 loans (22.7%) as Fitch Loans of Concern, which includes 23 specially serviced assets (15.4%).
As of the July 2014 distribution date, the pool's aggregate principal balance has been reduced by 18.4% to $2.12 billion from $2.6 billion at issuance. Per the servicer reporting, two loans (0.3% of the pool) are defeased. Interest shortfalls are currently affecting classes D through S.
In total, there are currently 23 assets (15.4%) in special servicing, which consists of 14 REO (11.8%), two loans (0.5%) in foreclosure, and seven loans (3%) that are over 90 days delinquent on debt service payments.
The largest contributor to expected losses is a 744-key, full-service hotel (4.1%) located in Daytona Beach, Florida. The hotel has waterfront access and is in close proximity to the airport and the Daytona Raceway. The loan transferred to special servicing in October 2010 for imminent default and subsequently became REO in August 2013. As of June 2014, the hotel achieved TTM occupancy, ADR, and RevPAR of 70.1%, $128.87, and $90.32, respectively, surpassing its competitive set averages of 61.1%, $118.95, and $72.69. Results over the same period in 2013 for TTM occupancy, ADR, and RevPAR were 68.5%, $131.18, and $89.89, respectively. The most recent appraisal value has declined from previous appraisal valuations, in part due to higher estimates of capital expenditures which include a 75% increase in costs for soft goods and guestroom lighting, 68% increase for meeting space renovation, and 84% higher estimate for exterior maintenance and upgrades. A substantial infusion in capital would be required to maintain brand standards and to compete with newer hotels coming online in the market.
The next largest contributor to expected losses is a 754,882 sf regional mall (1.8% of the pool), located in Ashtabula, OH. The loan transferred to special servicing in September 2010 for monetary default and subsequently became REO in December 2012. The mall has only two remaining anchors from the original five at issuance. The remaining anchors are JC Penney and K-Mart. The mall was approximately 66% occupied as of July 2014. The asset is listed for sale via auction at the end of the month. Fitch anticipates significant losses based on recent valuations.
The third largest contributor to expected losses is a 379,685 sf Wal-Mart anchored retail property (3.5%) located in Milford, CT. As of June 2014, occupancy for the center declined to 93% as a result of Sleepy's vacating at lease expiration. With the decline in occupancy, NOI declined 10% from YE 2012 to YE 2013 and cash flow has been insufficient to service the debt with debt service coverage ratio (DSCR) as of December 2013 at 0.96x. The former Arby's at the center has been converted to a Sonic Drive-In as of November 2013. The property has no leases expiring through 2016 and the loan remains current as of July 2014. According to Reis, the Orange/Milford submarket of New Haven reported a vacancy rate of 7.3% and asking rents of $17.85 psf compared to average in-place rents of $14.69 psf.
RATING SENSITIVITY
Rating Outlooks on the 'AAA' rated classes remain Stable due to increasing credit enhancement and continued paydown of the classes. The Negative Outlooks on the A-M classes reflect the high concentration of REO assets and the lack of progress liquidating the REO assets which will lead to additional expenses. The distressed classes (those rated below 'B-sf') are subject to further downgrades as losses are realized.
Fitch downgrades and revises Outlooks on the following classes as indicated:
--$194.7 million class A-M to 'BBBsf' from 'AAsf', Outlook to Negative from Stable;
--$20 million class A-MFL to 'BBBsf' from 'AAsf', Outlook to Negative from Stable;
--$44.9 million class A-MA to 'BBBsf' from 'AAsf', Outlook to Negative from Stable;
--$26 million class C to 'Csf' from 'CCsf', RE 0%;
--$16.2 million class D to 'Csf' from 'CCsf', RE 0%.
Fitch affirms the following classes and revises REs as indicated:
--$131 million class A-J at 'CCCsf', RE 65%;
--$30 million class A-JFL at 'CCCsf', RE 65%;
--$33.7 million class A-JA at 'CCCsf', RE 65%.
Fitch affirms the following classes:
--$167.2 million class A-1A at 'AAAsf', Outlook Stable;
--$1.3 billion class A-4 at 'AAAsf', Outlook Stable;
--$19.5 million class B at 'CCsf', RE 0%;
--$38.9 million class E at 'Csf', RE 0%;
--$13 million class F at 'Csf', RE 0%;
--$35.7 million class G at 'Csf', RE 0%;
--$26 million class H at 'Csf', RE 0%;
--$26 million class J at 'Csf', RE 0%;
--$20.5 million 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%.
Fitch does not rate the class O, P, Q and S certificates. Classes A-1, A-2 and A-3 have paid in full. Fitch previously withdrew the ratings on the interest-only class X-1 and X-2 certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 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'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=847974
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