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Fitch Downgrades Class A-M of CGCMT 2006-C5; Outlook Remains Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded one and affirmed 18 classes of Citigroup Commercial Mortgage Trust, commercial mortgage pass-through certificates, series 2006-C5 (CGCMT 2006-C5). A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The downgrade of class A-M reflects an overall increase in expected losses for the pool, the lack of progress in resolving the specially serviced assets, and the risk of potential future interest shortfalls increasing to the class. Fitch modeled losses of 12.9% of the remaining pool; expected losses on the original pool balance total 13.9%, including $88 million (4.1% of the original pool balance) in realized losses to date. Fitch has designated 58 loans (32.5%) as Fitch Loans of Concern, which includes 19 specially serviced assets (12.5%) and the largest loan in the pool (7.6%) which recently transferred to special servicing after the July 2014 remittance report. Of the real-estate owned (REO) assets in special servicing, Fitch modeled loss severities in excess of 40%, ranging from 43% to two assets with greater than 100% loss severity.

As of the July 2014 distribution date, the pool's aggregate principal balance has been reduced by 28% to $1.61 billion from $2.24 billion at issuance. Eight loans (2.9% of the pool) have defeased. Cumulative interest shortfalls totaling $14.4 million are currently affecting classes C through P.

The largest contributor to modeled losses, which remains the same since the last rating action, is the IRET Portfolio (7.6% of the pool). The loan is secured by a portfolio of nine suburban office properties totaling 936,720 square feet (sf) located in the Omaha, NE MSA (four properties); the greater Minneapolis, MN MSA (two), the St. Louis, MO MSA (two), and Leawood, KS (one). The loan recently transferred to special servicing in July 2014 for imminent default. The borrower requested the transfer of the loan to special servicing as it is unwilling to fund debt service shortfalls and come out of pocket for capital, leasing, and other costs. The borrower believes the portfolio is overleveraged and indicated it would not be able to support enough take-out financing when the loan matures in October 2016. As of the July 2014 remittance report, the loan remains current; however, the borrower is projecting negative cash flow in 2014 and 2015.

Portfolio occupancy was above 90% during 2010 and early 2011 and was 95.7% at issuance; however, performance declined drastically between 2010 and 2012 due to a significant drop in occupancy, which was largely attributable to three large tenants either vacating or downsizing at their lease expiration. Assurant and Unigraphics Solutions both vacated their entire occupied spaces at two of the underlying properties in 2010 and 2011 and Hewlett Packard downsized its occupied square footage at another one of the underlying properties.

As of the April 2014 rent roll, portfolio occupancy improved to 90.3% due to recent positive leasing momentum at the underlying properties compared to 82.8% and 81.8% for the trailing 12 months (TTM) ending April 2013 and TTM ending April 2012, respectively. The underlying properties have experienced both positive and negative leasing momentum given the various different markets with tenants expanding, tenants vacating at lease expiration, and new leases signed. Rollover risk remains significant over the next few years prior to loan maturity, with 7% rolling in 2014, 13% in 2015, and 16% in 2016, according to the April 2014 rent roll.

For TTM ending April 2014, the portfolio generated a net operating income (NOI) of $8.76 million, a 19% improvement from $7.37 million from TTM April 2013 due to recent leasing, but remained 14% below Fitch's underwritten cash flow at issuance. The debt service coverage ratio, on a net cash flow basis, was 1.09x for TTM April 2014, 0.88x for TTM April 2013, 0.92x for TTM April 2012, and 1.44x at issuance.

According to REIS, the underlying property submarkets reported vacancies ranging between 10.3% and 25.5% (weighted average market vacancy of approximately 15%). The weighted average portfolio rent is approximately $19 per square foot (psf) compared to REIS-reported submarket asking rents ranging between $15 and $24 psf (weighted average asking rent of approximately $20 psf). Fitch will continue to monitor the portfolio's performance and the workout of this loan in special servicing.

The second largest contributor to modeled losses, which remains the same since the last rating action, is the One and Two Securities Centre asset (4.1%). The asset consists of two office buildings totaling 521,957 sf located in the Buckhead submarket of Atlanta, GA. The loan transferred to special servicing in December 2010 for imminent default when several tenants vacated upon lease expiration. The asset became REO in November 2011.

As of the June 2014 rent roll, One Securities Centre was 92.2% leased and Two Securities Centre was 57.3% leased with a combined occupancy of 75.7%, representing a significant decline from 95% reported at issuance. According to REIS, the Buckhead office submarket reported a vacancy rate of 22.2% and average asking rents of $28.30 psf. Average in-place rents at the property were below market at approximately $21.60 psf according to the June 2014 rent roll. The NOI for the TTM period ending June 2014 declined nearly 72% when compared to issuance. According to the servicer, the occupancy for Two Securities Centre is projected to reach 75% in the next four months due to three newly signed leases totaling approximately 15% of that building's square footage. After the leasing is in place, the property is expected to be marketed for sale.

The third largest contributors to modeled losses are the specially-serviced Courtyard Atlanta Roswell and Courtyard Columbia Northwest assets (combined 0.9%). The loans were both transferred to special servicing in November 2009 for payment default. The assets became REO in 2011. Both assets lost their Courtyard hotel flags in July 2012. Fitch modeled loss severities in excess of 100% for these assets.

The Courtyard Columbia Northwest, which now has a new affiliation with Baymont Inn & Suites, is a 149-room hotel property located in Columbia, SC. The NOI reported for the TTM period ending May 2014 was negative. According to the May 2014 STR report, the property performed below its competitive set in terms of occupancy and revenue per available room (RevPAR). For the TTM ending May 2014, the property's occupancy and RevPAR were 41.5% and $28.64, respectively, compared to 53.6% and $31.89 for the competitive set. The asset was listed for sale in the September and November 2013 auctions, but no bids were accepted. A post-closing offer was received from a bidder, but was denied by the controlling class representative. The special servicer is preparing other recommendations for asset disposal.

The Courtyard Atlanta Roswell, which is now operating independently as Hotel 400, is a 154-room hotel property located in Roswell, GA. Performance has deteriorated significantly since issuance. The NOI reported for the TTM ending May 2014 was negative. According to the June 2014 STR report, the property performed significantly below its competitive set in terms of occupancy, average daily rate (ADR), and RevPAR. For the TTM ending June 2014, the property's occupancy, ADR, and RevPAR were 15.8%, $66.69, and $10.56, respectively, compared to 66.6%, $81.74, and $54.42, for the competitive set. The hotel also has an unsubordinated ground lease and the most recent appraisal valued the collateral at zero. The special servicer is working to complete an orderly turnover of the asset to the ground lessor.

RATING SENSITIVITIES

The Rating Outlooks on the super senior 'AAA' classes remain Stable due to sufficient credit enhancement and continued paydown. The Negative Rating Outlook on class A-M reflects the high concentration of specially serviced assets and the uncertainty and timing surrounding their workouts and final dispositions. Additionally, the Negative Outlook reflects the ongoing risks of increasing interest shortfalls should additional loans transfer to special servicing, as well as the possibility for further performance deterioration of the top 15 loans. Distressed classes (those rated below 'Bsf') may be subject to downgrades as losses are realized or if realized losses are greater than Fitch's expectations. No upgrades to any of the classes are anticipated.

Fitch has downgraded the following class as indicated:

--$212.4 million class A-M to 'AAsf' from 'AAAsf'; Outlook Negative.

In addition, Fitch has affirmed the following classes as indicated:

--$52.9 million class A-3 at 'AAAsf', Outlook Stable;

--$46.9 million class A-SB at 'AAAsf', Outlook Stable;

--$774.3 million class A-4 at 'AAAsf', Outlook Stable;

--$188.1 million class A-1A at 'AAAsf', Outlook Stable;

--$172.6 million class A-J at 'CCCsf'; RE 80%;

--$42.5 million class B at 'CCsf'; RE 0%;

--$21.2 million class C at 'CCsf'; RE 0%;

--$26.5 million class D at 'Csf'; RE 0%;

--$29.2 million class E at 'Csf'; RE 0%;

--$26.5 million class F at 'Csf', RE 0%;

--$18.2 million class G at 'Dsf', RE 0%;

--$0 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 O at 'Dsf', RE 0%.

Fitch previously withdrew the ratings on the interest-only class XP and XC certificates. Classes A-1, A-2, AMP-1, AMP-2, and AMP-3 have paid in full. Fitch does not rate class P.

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', available at 'www.fitchratings.com' or in the link at the end of the press release.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).

Applicable Criteria and Related Research:

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=846395

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Contacts

Fitch Ratings
Primary Analyst
Melissa Che
Director
+1-212-612-7862
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com