NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 17 classes of Morgan Stanley Capital I Trust (MSCI) commercial mortgage pass-through certificates, series 2006-IQ12. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The affirmations reflect sufficient credit enhancement relative to Fitch expected losses. Fitch modeled losses of 5.6% of the remaining pool; expected losses on the original pool balance total 12.9%, including $249.2 million (9.1% of the original pool balance) in realized losses to date. Fitch has designated 47 loans (21.7%) as Fitch Loans of Concern, which includes 12 specially serviced assets (9.1%).
The Rating Outlooks on classes A-1A and A-4 remain Stable due to sufficient credit enhancement and continued paydown. The Outlooks on classes A-M and A-MFX remain Negative due to high Fitch loan to value (LTV) for several of the top 15 loans, and concerns surrounding the timing and ultimate resolutions of the specially serviced loans. These classes could be subjected to downward rating migration should realized losses exceed Fitch's expectation on the specially serviced assets, or should loans not refinance at maturity as expected.
As of the July 2014 distribution date, the pool's aggregate principal balance has been reduced by 33.6% to $1.81 billion from $2.73 billion at issuance. Per the servicer reporting, three loans (0.5% of the pool) are defeased. Interest shortfalls are currently affecting classes C, E, and H through S.
The largest contributor to expected losses is the Gateway Office Building loan (3.1% of the pool), which is secured by a 251,430 square foot (SF) office building in Rockville, MD. Cash flow had recently declined due to rent reductions on the properties largest tenant, EMMES Corporation (EMMES), which had extended its lease from May 2013 to May 2033. EMMES had expanded its space to approximately 97,000 SF (38% NRA) from 89,000 SF (31% NRA), but base rent was reduced by approximately 18% with 2.75% annual rent steps. The year to date (YTD) March 2014 financials net operating income (NOI) reported a 15% decline from year end (YE) 2013, and a 20% decline from YE 2012. The YTD March 2014 NOI debt service coverage ratio (DSCR) was 1.12x, compared to 1.30x and 1.40x for YE 2013 and YE 2012, respectively. The March 2014 rent roll reported occupancy at 88.5%, with leases for approximately 15% of the property's NRA scheduled to roll by YE 2015. The loan remains current as of the July 2014 distribution date.
The next largest contributor to expected losses is the specially-serviced Harbour Centre loan (2.8%), which is secured by a 213,501 SF office property in Aventura, FL. The loan was previously modified after transferring to special servicing in April 2010 for shortage in the leasing fund reserves. The modification included an extension of the interest only period to January 2013, and deferred interest payments applied to the monthly reserve collection. The loan transferred again to special servicing in June 2013 due to a default on the deferred interest payments, and the borrower had subsequently filed for bankruptcy in September 2013. A cash collateral order was put into place and debt service payments are current as of the July 2014 distribution. The servicer reports it is pursuing all rights and remedies, including loan modification discussions with the borrower. The June 2014 rent roll reported occupancy at 89.7%, with YE 2013 NOI DSCR reporting at 1.34x.
The third largest contributor to expected losses is secured by a 66,000 SF medical office building in Landsdowne, VA (0.7%). The property had experienced cash flow issues due to large tenant vacancies in 2013. The loan had transferred to special servicing in February 2013 due to monetary default, and became REO in January 2014. The property is currently 41% occupied. The servicer is working to lease up and stabilize the property.
Fitch affirms the following classes:
--$378.6 million class A-1A at 'AAAsf'; Outlook to Stable;
--$864.2 million class A-4 at 'AAAsf'; Outlook Stable;
--$173 million class A-M at 'AAAsf'; Outlook Negative;
--$100 million class A-MFX at 'AAAsf'; Outlook Negative;
--$242.3 million class A-J at 'CCsf'; RE 85%;
--$17.1 million class B at 'Csf'; RE 0%;
--$37.5 million class C at 'Dsf'; RE 0%;
--$0 class D at 'Dsf'; RE 0%;
--$0 class E at 'Dsf'; RE 0%;
--$0 class F at 'Dsf'; RE 0%;
--$0 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%.
The class A-1, A-2, A-NM, A-3 and A-AB certificates have paid in full. Fitch does not rate the class O, P, Q and S certificates. Fitch previously withdrew the ratings on the class A-MFL certificate and the interest-only class X-1, X-2 and X-W 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 then CMBS then Criteria Reports
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:
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria