CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed two distressed classes of Lehman Brothers Floating Rate Commercial Mortgage Trust 2007-LLF C5 (LB 2007-LLF C5). A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The affirmations of the distressed classes reflect the specially serviced nature of the remaining loans, the uncertain timing of repayment, and the lack of available financial and valuation information on the largest remaining loan, the Normandy Portfolio (73.9% of the pool).
Two loans remain in the transaction, both of which are specially serviced. Both loans have been modified and extended beyond their original maturity dates and have final extended maturities in June 2015. Since last review, the Interstate North Office Park loan ($49.5 million) has been paid in full with no loss.
The largest remaining loan, the Normandy Office Portfolio (73.9% of pool), is secured by a portfolio of six office properties and two industrial properties totaling 986,571 square feet (sf) located in Massachusetts and New Jersey. Since last review, three properties were released from the collateral pool and the loan was paid down by $25.3 million.
The portfolio was first transferred to special servicing in October 2011 due to imminent default. The loan was modified in December 2012 and returned to the master servicer in March 2013. Terms of the modification included a maturity date extension to June 9, 2014 with a one-year extension option subject to an 8.5% debt yield, the contribution of $12 million in new equity by the borrower, and the sweeping of excess cash flow into the leasing and capital expenditures (capex) reserve account until it reaches $10 million.
The loan transferred back to special servicing in December 2013 due to imminent default. The loan continues to pay as agreed, but the special servicer indicated there are insufficient funds in escrow to cover tenant improvements and leasing commissions in connection with the recent signing of several new leases. According to the special servicer, an additional modification is under consideration that will provide for usage of the cash collateral account to fund tenant improvements and leasing commissions and adjust the release prices for the remaining collateral. The final extended maturity of the loan is June 9, 2015. The borrower has proposed a timetable under which it plans to sell or refinance the remaining six properties prior to the final maturity.
Limited property-level financial data is available on the remaining collateral pool. The year-end 2014 consolidated financial statements for the portfolio include partial-year information for the released properties and therefore provide limited data to analyze the remaining pool. Fitch requested property-level statements and the special servicer is working to obtain them from the borrower. According to the special servicer, no recent appraisals have been ordered. Per the Dec.r 31, 2014 rent rolls for the remaining properties, the portfolio was 73.1% occupied, a decline from the 75.2% reported at year-end 2013 and significantly below the 89% reported at issuance. According to Reis and as of fourth quarter 2014, the underlying property submarkets reported an increase in vacancy rates ranging from 23% to 43%, an increase from the range of 14.1% and 28.1% reported as of fourth quarter 2013. As of the December 2014 rent rolls, in-place base rents were approximately $19.74 per square foot (psf) compared to underlying submarket asking rents in the $20.73 psf to $23.33 psf range, according to Reis.
The second remaining loan, the Sheraton Old San Juan (26%), is secured by the leasehold interest in a 240-key hotel property located in San Juan, Puerto Rico.
The loan was transferred to special servicing in November 2011 due to imminent default. A loan modification closed in February 2013. At the time of modification, the maturity date was extended to June 9, 2013 with four additional six-month extension options. The special servicer indicated the loan automatically extends as long as the borrower certifies there is no Event of Default every six months. The final and fully extended maturity date of the loan is June 9, 2015. The special servicer reports that a discounted payoff is expected to close in July 2015. Fitch models a loss based on the likely discounted payoff, taking into consideration additional fees and expenses.
According to the February 2014 Smith Travel Research (STR) report, the property reported occupancy, average daily rate, and revenue per available room (RevPAR) of 79.8%, $141.16, and $112.65 respectively, for the trailing-12 months (TTM) ending February 2014. Performance represented a slight improvement from the 80.7%, $130.45, and $105.22, respectively, for the TTM ending May 2013. The property performs above its non-beachfront competitive set; however, property net operating income (NOI) continues to decline, with year-end 2014 NOI of $1.2 million representing a further decline from the $1.37 million at year-end 2013 and $1.99 million at year-end 2012 due to a decline in revenues and a higher operating expense ratio.
The rated classes are dependent upon the resolution of the two remaining specially-serviced loans. Fitch analyzed each loan individually and ran a liquidation analysis evaluating the estimated proceeds available to the remaining classes. Limited financial information was available to Fitch in evaluating the remaining assets in the Normandy Portfolio. The outcome of the liquidation scenario and the impact to the trust was considered in Fitch's rating recommendations.
An upgrade for class H would be possible if additional financial information on the remaining assets in the Normandy Portfolio indicates the properties are performing better than expected and timing on the disposition of the assets is known. Additional downgrades to class H are possible as losses are realized. Class J is not subject to upgrade as it has already incurred a principal loss.
Fitch has affirmed the following classes as indicated:
--$29.6 million class H at 'CCCsf'; RE 100%;
--$57.5 million class J at 'Dsf'; RE 0%.
Classes A-1, A-2, A-3, B, C, D, E, F, G and X-1 have paid in full. Fitch does not rate classes CGC, CPE, CQR-1, CQR-2, DMC-1, DMC-2, FBS-1, FBS-2, FTC-1, FTC-2, HAR-1, HAR-2, HRH, HSS, INO, JHC, LCC, MVR, NOP-1, NOP-2, NOP-3, OCS, ONA, OWS-1, OWS-2, PHO, SBG, SFO-1, SFO-2, SFO-3, SFO-4, SFO-5, TSS-1, TSS-2, UCP, VIS, and WHH. Fitch previously withdrew the rating of the interest-only class X-2.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug 4, 2014);
--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions' (Mar 20, 2015).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria