CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed 19 classes of LB-UBS Commercial Mortgage Trust (LB-UBS) commercial mortgage pass-through certificates series 2007-C7. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The affirmations reflect relatively stable performance of the pool since Fitch's last rating action. Fitch modeled losses of 6.8% of the remaining pool; expected losses on the original pool balance total 10.2%, including $177.7 million (5.6% of the original pool balance) in realized losses to date. Fitch has designated 16 loans (37.6%) as Fitch Loans of Concern. There were 10 specially serviced assets (10.7%) as of the January 2015 remittance, including the Willis Tower loan (f/k/a Sears Tower; 2.3%) which has since been returned to the master servicer.
As of the January 2015 distribution date, the pool's aggregate principal balance has been reduced by 32.4% to $2.14 billion from $3.17 billion at issuance. Per the servicer reporting, the defeased loans (20.2% of the pool) include one partially defeased (0.2%) and one fully defeased loan (20%). Interest shortfalls are currently affecting classes D through T.
The largest contributor to Fitch expected losses is the specially-serviced Ritz Carlton Bachelor Gulch loan (2.9% of the pool), which is secured by a 117-room, full service resort hotel in Avon, CO located in Colorado's Vail Valley on Beaver Creek Mountain. The loan first transferred to special servicing in October 2010, and returned to the master servicer as a modified loan in June 2012; modified terms included a debt service reserve, a reduced pay rate, a deferred accrual rate, and a pledge 100% of net proceeds from the sale of non-collateral hotel condominium units. Since the loan was modified, the property has undergone extensive renovations with significant investment by the sponsor. The loan transferred to special servicing a second time in May 2013 to obtain approval for additional lease financing to complete planned FF&E; all planned property improvements have been completed.
The loan remains current under the modified terms; however, the borrower was unable to make a required $4 million principal pay down, which triggered an interest rate increase to 6.9% as of January 2015 from a modified rate of 3%. The trailing 12 month (TTM) June 2014 net operating income (NOI) debt service coverage ratio (DSCR) reported at 2.29x, a significant improvement compared to year-end (YE) 2012 at 1.09x. However, based on the increased rate of 6.9%, NOI DSCR for June 2014 would calculate to approximately 1.0x. As of TTM June 2014, occupancy reported at 50.4%, average daily rate (ADR) at $594.08, and revenue per available room (RevPAR) at $299.24, compared to YE December 2012 at 55% occupancy, $390.60 ADR, and $214.83 RevPAR. The borrower has proposed terms for another loan modification.
The next largest contributor to expected losses is the Interstate Corporate Center (1.7%), which is secured by a 15 building 381,759 square foot (sf) office complex located in Norfolk, VA. The property had experienced cash flow issues due to occupancy declines. The property is currently 67% occupied a decline from 76% in January 2014 and 86% at issuance. The loan transferred to special servicing in September 2013 for imminent default, and has been in payment default since October 2013. According to the servicer should negotiation efforts for a loan modification fail, the borrower has agreed to consent to the appointment of a receiver and not oppose the foreclosure.
The third largest contributor to expected losses is secured by an 180,000 sf grocery anchored retail property in Port Washington, NY (0.9%). The property has experienced cash flow issues due to tenant vacancies. The loan transferred to special servicing in May 2010 for payment default and has been real estate owned (REO) since April 2014. At the end of January 2015, the property's occupancy fell to 43% after the subjects anchor tenant, King Kullen (previously 26% of the net rentable area) vacated. An REO management team is in place, and a leasing firm continues to market the vacant space.
The Rating Outlooks on classes A-3 and A-1A are Stable due to sufficient credit enhancement and continued paydown. The Negative Outlook on class A-M reflects the overall high leverage and performance concerns on several loans in the top 15 including significant tenant vacancies, lease rollover risk, and property performance below underwritten expectations. The Negative Outlook reflect the potential for further rating actions should realized losses be greater than Fitch's expectations.
Fitch affirms the following classes:
--$1.3 billion class A-3 at 'AAAsf'; Outlook Stable;
--$118.4 million class A-1A at 'AAAsf'; Outlook Stable;
--$317 million class A-M at 'AAAsf'; Outlook Negative;
--$269.5 million class A-J at 'B-sf'; Outlook Stable;
--$47.6 million class B at 'CCCsf'; RE 85%;
--$35.7 million class C at 'CCsf'; RE 0%;
--$23.8 million class D at 'CCsf'; RE 0%;
--$27.7 million class E at 'CCsf'; RE 0%;
--$15.9 million class F at 'Csf'; RE 0%;
--$31.7 million class G at 'Csf'; RE 0%;
--$4.6 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%;
--$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, A-2 and A-AB certificates have paid in full. Fitch does not rate the class T certificates. Fitch previously withdrew the ratings on the interest-only class X-CP, X-CL and X-W 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