NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded two and affirmed 17 classes of LB-UBS Commercial Mortgage Trust (LB-UBS) commercial mortgage pass-through certificates series 2007- C7. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades are due to the increased certainty of losses to the already distressed classes. In addition, the downgrades reflect an increase in Fitch-modeled losses since the last rating action primarily due to performance declines among the top-15 loans. Fitch modeled losses of 7.3% of the remaining pool; expected losses on the original pool balance total 11.1%, including $200.8 million (6.3% of the original pool balance) in realized losses to date. Fitch had modeled losses of 10.2% of the original pool balance at the last rating action. Fitch has designated 23 loans (47%) as Fitch Loans of Concern, including eight loans (6.7%) that are currently in special servicing.
As of the January 2016 distribution date, the pool's aggregate principal balance has been reduced by 33.9% to $2.09 billion from $3.17 billion at issuance. Per the servicer reporting, the defeased loans (21.7% of the pool) include one partially defeased (0.2%) and four fully defeased loans (21.5%). Interest shortfalls are currently affecting classes E through T.
The largest contributor to Fitch expected losses is the District at Tustin Legacy loan (9.8% of the pool), which is secured by 521,695 square feet (sf) of a 983,976 sf retail center in Tustin, CA. Major tenants include Target, Whole Foods, TJ Maxx, and an AMC Theater. Non-collateral anchors are Costco and Lowes. Best Buy, which leases 30,000 sf of the collateral (or 5.8% of the net rentable area [NRA]) through January 2018, had vacated the property in 2012; the space is currently subleased to AKI-Home Furnishing. The December 2015 rent roll reported the property 99% leased. Despite the high occupancy since issuance, the property's net operating income (NOI) has performed lower than expected, as rental rates and reimbursements remain below underwritten levels. Based on the servicer reported year end (YE) 2015 operating statements, the NOI debt service coverage ratio (DSCR) reported at 1.03x compared to 1.01x for YE 2014, and 1.08x for YE 2013. The loan remains current as of the January 2016 remittance.
The second largest contributor to Fitch expected losses is the specially-serviced Ritz Carlton Bachelor Gulch loan (2.8% of the pool), which is secured by a 117-room, full-service resort hotel in Avon, CO located in Colorado's Vail Valley on Beaver Creek Mountain. The loan first transferred to special servicing in October 2010, and returned to the master servicer as a modified loan in June 2012; modified terms included a debt service reserve, a reduced pay rate, a deferred accrual rate, and a pledge of net proceeds from the sale of non-collateral hotel condominium units. The loan remains current under the modified terms; however, the borrower was unable to make a required $4 million principal paydown in January 2015, which triggered an interest rate increase to 6.9% as of January 2015 from a modified start rate of 3%. In addition, due to the default of a separate note that encumbers the non-collateral condo units, the net sales proceeds from the condos have been prioritized to repay the condominium note until it is paid in full.
The loan transferred to special servicing a second time in May 2013 to obtain approval for additional lease financing to complete planned FF&E; all planned property improvements have been completed. Per the borrower provided YE 2015 financial statement, occupancy reported at 48.6%, average daily rate (ADR) at $506.81, and revenue per available room (RevPAR) at $244.34, compared to servicer reported YE 2012 at 55% occupancy, $390.60 ADR, and $214.83 RevPAR. Despite significant performance improvement since 2012, the servicer indicates the borrower has not been able to refinance the loan due to the lack of stabilized operations. The servicer-reported YE 2014 NOI is approximately 75% above YE 2012; however, it remains 68% below underwritten NOI at issuance. The borrower has proposed terms for another loan modification, including a reduced interest rate with principal curtailment, and an extension of the loan's current maturity date of October 2017.
The third largest contributor to expected losses is a 180,000 sf retail property in Port Washington, NY (0.9%). The property has experienced cash flow issues due to tenant vacancies. The loan transferred to special servicing in May 2010 for payment default and has been real estate owned (REO) since April 2014. The property's occupancy fell significantly in January 2015 after the subject's anchor tenant, King Kullen (previously 26% of the NRA), vacated. The November 2015 rent roll reports occupancy at 47.2%. An REO management team is in place, and a leasing firm continues to market the vacant space.
RATING SENSITIVITIES
The Rating Outlooks on classes A-3 and A-1A are Stable due to sufficient credit enhancement and continued pay-down. The Negative Outlooks on classes A-M and A-J reflects the overall high leverage and performance concerns on several loans in the top 15, including significant tenant vacancies, lease rollover risk, and property performance below underwritten expectations. The Negative Outlooks reflect the potential for further rating actions should realized losses be greater than Fitch's expectations. Stable Outlooks for the classes may be considered should property performance stabilize, and servicer updates indicate stronger refinance capability upon maturity or better recoveries from updated property valuations.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has downgraded the following ratings:
--$23.8 million class D
to 'Csf' from 'CCsf'; RE 0%;
--$27.7 million class E to 'Csf' from
'CCsf'; RE 0%.
Fitch has affirmed the following ratings and revised Rating Outlooks as
indicated:
--$1.2 billion class A-3 at 'AAAsf'; Outlook Stable;
--$117.7
million class A-1A at 'AAAsf'; Outlook Stable;
--$317 million class
A-M at 'AAAsf'; Outlook Negative;
--$269.5 million class A-J at
'B-sf'; Outlook to Negative from Stable;
--$47.6 million class B at
'CCCsf'; RE 65%;
--$35.7 million class C at 'CCsf'; RE 0%;
--$15.9
million class F at 'Csf'; RE 0%;
--$13.2 million class G at 'Dsf';
RE 0%;
--$0 million class H at 'Dsf'; RE 0%;
--$0 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, A-2 and A-AB certificates have paid in full. Fitch does not rate the class T certificates. Fitch previously withdrew the ratings on the interest-only class X-CP, X-CL and X-W certificates.
Additional information is available at www.fitchratings.com.
Applicable
Criteria
Global Structured Finance Rating Criteria (pub. 06 Jul
2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
U.S.
and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S.
Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998993
Solicitation
Status
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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