NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded four and affirmed 19 classes of ML-CFC Commercial Mortgage Trust, commercial mortgage pass-through certificates, series 2007-8 (ML-CFC 2007-8). A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The downgrades reflect an increase in Fitch modeled losses, primarily associated with loans in special servicing, since the last rating action. Fitch modeled losses of 23.3% of the remaining pool; expected losses on the original pool balance total 21.4%, including $112.4 million (4.6% of the original pool balance) in realized losses to date. Fitch has designated 69 loans (53.1%) as Fitch Loans of Concern, which includes 14 specially serviced assets (27.4%).
As of the December 2014 distribution date, the pool's aggregate principal balance has been reduced by 27.8% to $1.76 billion from $2.44 billion at issuance. According to servicer reporting, seven loans (4.8%) are defeased. Interest shortfalls are currently affecting classes AJ and AJ-A through T.
The largest contributors to Fitch modeled losses have remained the same since the last rating action and consist of three of the top 10 loans (25.7% of pool), two of which remain specially serviced (20.2%).
The largest contributor to modeled losses remains the specially serviced, Empirian Multifamily Portfolio Pool 2 asset (17.4% of the pool). The loan, which was initially secured by a portfolio of 73 multifamily properties totaling 6,892 units located across eight states, was transferred to special servicing in December 2010 for imminent default. The loan was modified in June 2012 splitting the original debt into 73 individual notes corresponding to the 73 multifamily assets that make up the portfolio.
Legal counsel was retained to initiate foreclosure across the entire portfolio. During 2012 and 2013, the lender foreclosed upon all 14 of the Georgia properties (1,218 units), the single Michigan property (101 units), and the two South Carolina properties (187 units). Court-appointed receivers remain in control of the remainder of the portfolio. The lender continues to pursue foreclosure, while discussions with the borrower continue regarding potential alternatives for the remaining portfolio, including the possibility of a loan modification and/or loan assumption. To date, 15 of the 17 foreclosed assets have been sold, including 13 of 14 Georgia assets which were sold in July 2013, March 2014, and April 2014, the Michigan asset which was sold in March 2014, and one of the two South Carolina assets which was sold in March 2014.
The remaining collateral consists of 58 properties (5,560 units). The two unsold foreclosed assets in Georgia and South Carolina are currently being held by the special servicer to improve financial performance prior to evaluating sales opportunities. The special servicer indicated there have been no recent foreclosures. As of year-end (YE) 2013, occupancy for the 56 non-foreclosed properties (5,386 units) was 78.3%.
The next largest contributor to modeled losses is the specially serviced, Towers at University Town Center (2.9%) asset. The loan was transferred to special servicing in July 2010 for delinquent payments. The asset, which became real-estate owned (REO) in October 2012, is a 224-unit high-rise, student housing property located in Hyattsville, MD. As of the September 2014 rent roll, the property was 98.7% occupied. The special servicer indicates it is still working to resolve the parking issue at the property. There is a fractured ownership structure for the property's parking garage, which has impacted the parking ratio at the property. An additional shuttle bus has been added to assist with leasing efforts and the special servicer has also executed a cost-sharing maintenance agreement with the adjacent garage owner. The special servicer indicated the building cannot be sold until the parking ratio requirements are met and therefore, the asset has not been taken to market or put up for auction to date.
The third largest contributor to modeled losses is the Executive Hills Portfolio loan (5.5%). The loan is secured by a portfolio of nine office properties comprising approximately 940,000 square feet, all of which are located in the Kansas City metropolitan statistical area. Five of the properties are located in Overland Park, KS and four are located in Kansas City, MO.
Portfolio occupancy has declined when compared to issuance, but has gradually improved. As of the September 2014 rent roll, the overall portfolio occupancy was 87.6%, an improvement from 83% at YE 2013, 70% at YE 2012, 79% at YE 2011 and 62% at YE 2010, but still remaining below the 92% reported at issuance. Since Fitch's last rating action, five of the nine underlying properties have reported an improvement in occupancy. The individual properties have current occupancies ranging from 71.2% to 100%. According to the September 2014 rent roll, approximately 31.6% of the portfolio square footage rolls prior to the end of 2017. According to REIS and as of third quarter 2014, the submarket vacancies of the underlying properties are relatively high ranging from 9.9% to 15.5%.
The Rating Outlooks on classes A-2 and A-SB are Stable due to the seniority of these classes and their expected continued paydown. The Rating Outlooks on classes A-3 and A-1A remain Negative due to the uncertainty surrounding the workout and final disposition of the specially serviced assets. These classes may be subject to downgrade if there is a continued lack of progress on liquidating the REO assets by the special servicer. Distressed classes (those rated below 'Bsf') may be subject to further downgrades as additional losses are realized.
Fitch has downgraded the following classes, as indicated:
--$126.9 million class AM to 'CCCsf' from 'Bsf'; RE 90%;
--$116.6 million class AM-A to 'CCCsf' from 'Bsf'; RE 90%;
--$109.4 million class AJ to 'Csf' from 'CCsf'; RE 0%;
--$100.6 million class AJ-A to 'Csf' from 'CCsf'; RE 0%.
In addition, Fitch has affirmed the following classes, as indicated:
--$4.1 million class A-2 at 'AAAsf'; Outlook Stable;
--$36.6 million class A-SB 'AAAsf'; Outlook Stable;
--$655.8 million class A-3 at 'AAsf'; Outlook Negative;
--$443.9 million class A-1A at 'AAsf'; Outlook Negative;
--$12.2 million class B at 'Csf'; RE 0%;
--$39.6 million class C at 'Csf'; RE 0%;
--$27.4 million class D at 'Csf'; RE 0%;
--$9.1 million class E at 'Csf'; RE 0%;
--$18.3 million class F at 'Csf'; RE 0%;
--$21.3 million class G at 'Csf'; RE 0%;
--$33.5 million class H at 'Csf'; RE 0%;
--$3.3 million 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 certificates have paid in full. Fitch does not rate class T. Fitch previously withdrew the rating on the interest-only class X.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 10, 2014 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 >> CMBS >> 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. 10, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria