CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded six rake classes of LB-UBS Commercial Mortgage Trust (LBUBS) commercial mortgage pass-through certificates series 2006-C1. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades to the six IUU rake classes are a result of continued value declines of the real estate owned (REO) Intel Corporate Center. The affirmations of the remaining classes in the trust are due to relatively stable performance of the overall pool.
Fitch modeled losses of 7.9% of the remaining pool; expected losses on the original pool balance total 11.1%, including $139.8 million (5.6% of the original pool balance) in realized losses to date. Fitch has designated 26 loans (18.2%) as Fitch Loans of Concern, which includes eight specially serviced assets (2.9%). Five of the top 10 loans in the pool are Fitch Loans of Concern (17.7%).
As of the January 2015 distribution date, the pool's aggregate principal balance has been reduced by 30% to $1.74 billion from $2.48 billion at issuance. Per the servicer reporting, 21 loans (30.4% of the pool) are defeased, including the largest loan in the pool (24.6%). Interest shortfalls are currently affecting classes G through T.
The IUU rake classes consist of B-notes on the Intel Corporate Center (78% of the collateral) and B-notes on U-Haul SAC Portfolio (5%) and the U-Haul 26 Properties Portfolio (17%). The Intel Corporate Center consists of two, 3-story office buildings connected by a pedestrian link located in Parsippany, NJ, along Route 10. The property was built in 1989 and contains approximately 289,000 square feet (sf) of rentable space. The entire building is leased to Intel under a lease expiring Dec. 31, 2015, however, Intel sold their Dialogic subsidiary in 2006 and subleased a portion of the larger building back to Dialogic (148,000 sf) and the first floor of the smaller building to Dovetail, both under subleases expiring Dec. 31, 2015. Dialogic has vacated the premises and is not seeking to extend the lease term. Dovetail is in physical occupancy but intends to vacate by lease expiration Dec. 31, 2015. The special servicer continues to market the property for sale and identify single tenant users to lease the space. The property was transferred to special servicing at loan maturity in January 2011 and became REO in September 2012. Submarket conditions remain challenged with REIS reporting the class B/C vacancy rate for Parsippany at 36% as of year-end 2014. B-notes on the The notes on both U-Haul portfolios mature in October 2015 and will likely repay given the performance and leverage on the loans. The A notes associated with all three portfolios are pooled within the trust.
Within the pooled trust, the largest contributor to expected losses is the DHL Center loan (3.3% of the pool), which is secured by a 490,000 sf distribution facility located in Breinigsville, PA. The facility, built in 2005, was operated and 100% occupied by DHL Express (USA), Inc. DHL ceased shipping operations within the United States in January 2009 and vacated the building. According to the May 2014 inspection report, DHL has secured two subleases and the property is 100% occupied. Information on the subleases have been requested by Fitch. DHL is current on rent payments and maintains on site security and maintenance. The 20 year DHL lease commenced in 2006, has a termination option at year 15 in 2021, and is guaranteed by Deutsche Post AG (rated 'BBB+'). The loan is current on payments through the January 2015 remittance date and matures in January 2016. The sponsor for the loan is an affiliate of UBS Real Estate Investments.
The next largest contributor to expected losses is the Sterling Portfolio (2.7%), which is secured by four office buildings totaling approximately 401,000 sf located in Farmingdale, Melville, and Plainview, NY. The buildings were primarily constructed in the 1960s and are one and two story office buildings. One property is a single tenant restaurant building constructed in 2005. The servicer-reported debt service coverage ratio (DSCR) was 0.83x as of June 2013, the most recent reporting available. Cash flow at the property has struggled since the loan began amortizing in 2011. The loan is cash managed and according to the servicer watchlist comments, a reserve of $7.5 million is in place. Consolidated occupancy is reported at 83% for the same period, consistent with the 82% reported at year-end 2012 and year-end 2011. The loan, which matures in December 2015, has been on the servicer watchlist since September 2011 and remains current on payments through the January 2015 remittance date. The sponsor for the loan is an affiliate of Sterling Equities.
Rating Outlooks on classes A-4 and A-M remain Stable due to increasing credit enhancement from defeasance and continued paydown. The Rating Outlook on class A-J remains Negative due to the concentration of underperforming loans within the top 10 loans in the pool (17.7%, five of the 10 loans are Fitch Loans of Concern) and the increasing risk of adverse selection given the concentrated maturities in 2015 and 2016. Ninety five percent of the pool matures within the next two years.
The Rating Outlook on class IUU-1 is Negative due to the uncertainty about the disposition of the Intel Corporate Center.
Fitch downgrades the following classes and assigns Recovery Estimates (REs) as indicated:
--$2.6 million class IUU-2 to 'CCCsf' from 'Bsf', RE 100%;
--$3.6 million class IUU-3 to 'CCsf' from 'Bsf', RE 60%;
--$908,999 class IUU-6 to 'Csf' from 'CCsf', RE 0%;
--$960,210 class IUU-7 to 'Csf' from 'CCsf', RE 0%;
--$1 million class IUU-8 to 'Csf' from 'CCsf', RE 0%;
--$1.1 million class IUU-9 to 'Csf' from 'CCsf', RE 0%.
Fitch affirms the following classes but assigns or revises Rating Outlooks and REs as indicated:
--$15.4 million class B at 'CCCsf', RE 0%;
--$5.7 million class IUU-1 at 'BBsf', Outlook to Negative from Stable;
--$1.9 million class IUU-4 at 'CCsf', RE 0%;
--$1.3 million class IUU-5 at 'Csf', RE 0%.
Fitch affirms the following classes as indicated:
--$1.1 billion class A-4 at 'AAAsf', Outlook Stable;
--$245.6 million class A-M at 'AAAsf', Outlook Stable;
--$221 million class A-J at 'Bsf', Outlook Negative;
--$27.6 million class C at 'CCCsf', RE 0%;
--$24.6 million class D at 'CCsf', RE 0%;
--$18.4 million class E at 'CCsf', RE 0%;
--$21.5 million class F at 'Csf', RE 0%;
--$21.5 million class G at 'Csf', RE 0%;
--$1.4 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%.
The class A-1, A-2, A-3 and A-AB certificates have paid in full. Fitch does not rate the class P, Q, S, T and IUU-10 certificates. Fitch previously withdrew the ratings on the interest-only class X-CP and X-CL certificates.
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