NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded and removed three classes from Rating Watch Negative, downgraded one additional class, and affirmed 14 classes of J.P. Morgan Chase Commercial Mortgage Securities Corp (JPMCC) commercial mortgage pass-through certificates series 2006-CIBC17. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades to classes A-4, A-SB, A-1-A reflect Fitch's estimated loss expectations, influenced by uncertainty of performance for the largest asset in the pool and other specially serviced assets. The downgrade to class J reflects incurred losses. Fitch modeled losses of 20.5% of the remaining pool; expected losses on the original pool balance total 19.5%, including $66.8 million (2.6% of the original pool balance) in realized losses to date. Five specially serviced loans have liquidated since the last rating action with better than expected recoveries; however, the overall concentration of specially serviced loans has remained high at 17 loans (27% of the pool) from 21 loans (29% of the pool). Fitch has designated 44 loans (39.7% of the pool) as Fitch Loans of Concern, which includes the specially serviced assets.
As of the June 2015 distribution date, the pool's aggregate principal balance has been reduced by 15.7% to $2.14 billion from $2.54 billion at issuance. Per the servicer reporting, six loans (4.5% of the pool) are defeased. Interest shortfalls are currently affecting classes A-J through NR.
The largest asset in the pool and the largest contributor to expected losses is the Bank of America Plaza (12.3% of the pool) a 1.3 million square foot (sf), class A office property located in downtown Atlanta, GA. The largest tenants are Trautman Sanders, LLC (25% NRA) and Bank of America (14% NRA) with lease expirations in 2022. The loan was transferred to special servicing in February 2011 and is currently real estate owned (REO). The property has suffered declining occupancy since 2011 resulting from tenant's vacating and downsizing space, in addition to challenging market conditions. The property was 46% occupied as of May 2015. As of the last rating action the special servicer was in negotiations with a large tenant, which would have brought occupancy more in-line with the market. However, the lease did not materialize and no new leases have been signed at the property in the past year. Per REIS, as of first quarter 2015 (1Q15), Downtown Atlanta submarket vacancy is 23.3% with asking rents at $21.88 psf. The special servicer projects a disposition to occur in 2H15.
The next largest contributor to expected losses (5.1% of the pool) is a 1,001,493 sf (479,954 sf of collateral) regional mall located in Wilmington, NC and known as the Independence Mall. The loan transferred to special servicing in October 2014 due to monetary default. The non-owned anchors include Sears, Belk, and Dillard's. The largest collateral tenant is JC Penney (23.4% NRA, lease expiration Aug. 31, 2016). The fiscal year-end (FYE) June 30, 2014 debt service coverage ratio (DSCR) is 0.89x with mall occupancy at 93.5% (occupancy representing the collateral is 86.5% as of June 30, 2014). Currently, the mall is 95% leased and the collateral is 82% leased. Per the special servicer, the property has experienced challenges securing new leases; an adjacent power center has lured potential tenants from the mall. Although mall occupancy remains above 90%, FYE June 30, 2014 DSCR was below 1.0x due to a decline in base rents for new and renewing tenants relative to previous years. Per REIS as of 1Q15, the Wilmington market retail vacancy is 16.6% with asking rents of $15.82 psf. The special servicer projects a disposition to occur in 2H15.
The third largest contributor to expected losses is a hotel located in close proximity to the Newark International Airport (2.5% of the pool), now known as a Hilton DoubleTree hotel, consisting of 503 rooms. The franchise flag changed from Sheraton to DoubleTree in 2012. The loan transferred to special servicing in March 2014 due to monetary default and per the September 2014 STR report the subject has been performing below its competitive set. The servicer has indicated the strategy is to foreclose and a receiver was appointed in January 2015.
The downgrades to classes A-4, A-SB, and A-1-A and Negative Outlook of class A-M reflect expected losses, limited progress in disposing the specially serviced loans, and increasing interest shortfalls to the subordinate classes. In addition, leasing activity at the Bank of America Plaza has not progressed since the last rating action and the final outcome for the loan is still uncertain.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has downgraded and removed the following classes from Rating Watch Negative, and assigned Rating Outlooks as indicated:
--$1.2 billion class A-4 to 'Asf' from 'AAAsf'; Outlook to Stable;
--$18.4 million class A-SB to 'Asf' from 'AAAsf'; Outlook to Stable;
--$260.4 million class A-1A to 'Asf' from 'AAAsf'; Outlook to Stable.
Fitch has downgraded the following class as indicated:
--$9.3 million class J at to 'Dsf' from 'Csf'; RE 0%;
Fitch has affirmed the following ratings as indicated:
--$253.7 million class A-M at 'Bsf''; Outlook Negative;
--$203 million class A-J at 'CCsf'; RE 10%;
--$44.4 million class B at 'Csf'; RE 0%;
--$19 million class C at 'Csf'; RE 0%;
--$34.9 million class D at 'Csf'; RE 0%;
--$31.7 million class E at 'Csf'; RE 0%;
--$34.9 million class F at 'Csf'; RE 0%;
--$31.7 million class G at 'Csf'; RE 0%;
--$31.7 million class H at 'Csf'; RE 0%;
--$0 class K at 'Csf'; 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%.
The class A-1 and A-3 certificates have paid in full. Fitch does not rate the class NR certificates. Fitch previously withdrew the rating on the interest-only class X certificates.
Additional information is available at www.fitchratings.com.
Global Structured Finance Rating Criteria (pub. 31 Mar 2015)
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)
Dodd-Frank Rating Information Disclosure Form