NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 26 classes of J.P. Morgan Chase Commercial Mortgage Securities Trust, commercial mortgage pass-through certificates, series 2007-LDP10 (JPMCC 2007-LDP10). A full list of rating actions follows at the end of this ratings action commentary.
KEY RATING DRIVERS
The affirmations reflect sufficient credit enhancement (CE) relative to Fitch-modeled loss expectations for the pool. Although CE has improved since Fitch's last rating action, this was offset by higher modeled loss expectation on the Skyline Portfolio loan, which was transferred back to the special servicer in April 2016, and the Lafayette Property Trust loan, where further performance decline is anticipated.
Fitch modeled losses of 16.9% of the remaining pool; expected losses on the original pool balance total 17.9%, including $486.8 million (9.1% of the original pool balance) in realized losses to date. Fitch has designated 19 loans (31% of the current pool balance) as Fitch Loans of Concern, which includes six specially serviced assets (17%).
As of the May 2016 distribution date, the pool's aggregate principal balance has been reduced by 48% to $2.77 billion from $5.33 billion at issuance. According to servicer reporting, 13 loans (6.5%) are defeased. Cumulative interest shortfalls totaling $60.2 million are currently affecting the A-J classes through class NR.
The three largest contributors to Fitch-modeled losses remain the same since Fitch's last rating action.
The largest contributor to Fitch-modeled losses is the Skyline Portfolio loan (7.3% of pool), which is secured by a portfolio of eight office buildings totaling approximately 2.6 million square feet (sf) located in Falls Church, VA. The loan re-transferred to the special servicer in April 2016 for imminent default. Portfolio performance has not improved since the loan was modified in October 2013 and returned to the master servicer in February 2014. Net operating income (NOI) for 2015 declined over 30% from 2014 and over 40% from 2013. Overall portfolio occupancy, which is expected to further decline, is currently estimated to be below 30%, compared with 52% in 2014, 54% in 2013 and 97% at issuance. The special servicer is moving forward with putting a receiver in place.
The loan was first transferred to special servicing back in March 2012 when portfolio occupancy was significantly affected as a result of the Base Realignment and Closure statute. The buildings in the portfolio were leased mainly to various GSA tenants and their related contractors. From 2011 through 2013, the portfolio lost one of its largest tenants, the Department of Defense, as well as its various subcontractors, which occupied in total nearly one-third of the portfolio square footage. Additionally, the properties in the portfolio were initially built to be near a prospective D.C. metro station, but tenants slowly began to vacate because the station was not built. The loan was modified in October 2013, whereby the total debt was split into a $350 million A-note and a $328 million B-note (trust portion consists of a $105 million A-note and $98.4 million B-note). Loan maturity was extended to February 2022 with a one-year extension option if certain performance metrics are attained.
The next largest contributor to Fitch-modeled losses is the Lafayette Property Trust loan (7.3%). The loan is secured by a portfolio of eight office properties and a single-tenant Clyde's restaurant totaling approximately 840,000 sf and located within the Mark Center, a 350-acre master-planned community in Alexandria, VA. The loan sponsor is Lafayette Real Estate, LLC. The loan was transferred to special servicing in November 2014 due to imminent default. The borrower delivered written notice of its inability to make debt service payments and fund tenant improvements and leasing commissions after the August 2015 lease expiration of the portfolio's largest tenant, CNA Corporation (CNA).
A receiver was appointed in November 2015. Properties are being posted for foreclosure. The special servicer indicated three of the underlying properties were foreclosed upon in April 2016. Foreclosures are expected to continue through the end of second quarter 2016 (2Q16).
As of the December 2015 rent roll, portfolio occupancy was 45%, down from being 73% leased (54% occupied) as of March 2015 and significantly underperforming the 75% occupancy for the I-395 submarket of Suburban Virginia as reported by REIS for 1Q16. CNA's lease expired in August 2015, but the tenant had already vacated its space (19% of the portfolio net rentable area [NRA]) at the 4825 Mark Center Drive property prior to lease expiration. Portfolio occupancy is expected to decline further to approximately 35% in 2017, as the current largest tenant, American Diabetes Association (10.1% of portfolio NRA), has provided notice it will vacate at its January 2017 lease expiration. Near-term lease rollover risk is 8% in 2016 and 13% in 2017.
The third largest contributor to Fitch-modeled losses is the Center West loan (3.2%), which is secured by a 348,021 sf office property located in Los Angeles, CA. The property has continued to exhibit year-over-year declines in cash flow. 2015 NOI declined 3.5% from 2014 and 16.3% from 2013. As of the April 2016 rent roll, the property was 55.7% occupied, which represents an improvement from 49.6% in May 2015 due to various new leases signed in 2015 and early 2016. However, the property performs below the REIS-reported market occupancy of 89.1% for the West Los Angeles office submarket as of 1Q16. An additional 10% of the property's total square footage rolls over prior to the loan's January 2017 maturity date. Further, in-place base rents are above market at approximately $57 per sf compared to asking rents of $46.69 per sf, according to REIS.
RATING SENSITIVITIES
The Stable Outlook on classes A-1A and A-3 reflect sufficient CE, these classes' seniority and expected continued paydown. The Outlook on class A-M was revised to Negative from Stable due to the expectation for further performance declines on the Skyline Portfolio and Lafayette Property Trust loans, both of which are in special servicing, as well as the uncertainty surrounding their ultimate resolution and disposition. Downgrades to the distressed classes will occur as losses are realized.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed and revised Rating Outlooks on the following classes as indicated:
--$362.6 million class A-1A at 'AAAsf'; Outlook Stable;
--$1.54 billion class A-3 at 'AAAsf'; Outlook Stable;
--$359 million class A-M at 'Bsf'; Outlook to Negative from Stable;
--$200.7 million class A-J at 'Csf'; RE 15%;
--$79.4 million class A-JS at 'Csf'; RE 15%;
--$100 million class A-JFX at 'Csf'; RE 15%;
--$71.8 million class B at 'Csf'; RE 0%;
--$34.8 million class B-S at 'Csf'; RE 0%;
--$17.8 million class C at 'Dsf'; RE 0%;
--$8.6 million class C-S at 'Dsf'; RE 0%;
--$0 class D at 'Dsf'; RE 0%;
--$0 class D-S at 'Dsf'; RE 0%;
--$0 class E at 'Dsf'; RE 0%;
--$0 class E-S at 'Dsf'; RE 0%;
--$0 class F at 'Dsf'; RE 0%;
--$0 class F-S at 'Dsf'; RE 0%;
--$0 class G at 'Dsf'; RE 0%;
--$0 class G-S at 'Dsf'; RE 0%;
--$0 class H at 'Dsf'; RE 0%;
--$0 class H-S 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%.
The class A-1, A-1S, A-2, A-2S, A-2SFX, A-2SFL, A-3S, and A-MS certificates have paid in full. Fitch does not rate the fully depleted class NR certificates. Fitch previously withdrew the rating on the interest-only class X certificates and the class A-JFL certificates.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
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=1005914
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005914
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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