Fitch Affirms JPMCC 2010-C2; Revises Outlooks

NEW YORK--()--Fitch Ratings has affirmed all classes and revised Rating Outlooks on two classes of J.P. Morgan Chase Commercial Mortgage Securities Trust, commercial mortgage pass-through certificates, series 2010-C2 (JPMCC 2010-C2). A full list of rating actions follows at the end of this ratings action commentary.

KEY RATING DRIVERS

The affirmations reflect the stable performance of the pool since issuance. Fitch modeled losses of 3.3% of the remaining pool; expected losses based on the original pool balance are 2.8%. The pool has experienced no realized losses to date. The pool has no specially serviced, delinquent, or defeased loans. Fitch has designated three loans (19.3% of pool) as Fitch Loans of Concern.

As of the June 2015 distribution date, the pool's aggregate principal balance has been paid down by 14.9% to $936.7 million from $1.1 billion at issuance. Nearly 99% of the pool, including all of the top 15 loans, reported 2014 financials. Based on financial statements for the remaining loans in the pool, the overall net operating income (NOI) improved 11% since issuance and 2.6% over 2013 reported financials.

The largest loan, Arizona Mills (17.5% of pool), is secured by a 1.25 million square foot (sf) outlet mall located in Tempe, AZ. As of the March 2015 rent roll, the property was 92.8% occupied, compared to 95.8% one-year earlier. The largest tenant, JC Penney Outlet (8.3% of total square footage), closed its store at the property at the end of 2013. This space has since been re-tenanted by At Home, a home decor and furniture superstore, which opened in July 2014. In addition, during first quarter 2015, Off Saks Fifth Avenue terminated its lease on 34,716 sf (2.8%) prior to its scheduled January 2016 lease expiration. Sports Authority is expected to downsize by moving into this former Saks Fifth Avenue space from its current 65,013 sf (5.2%) space. For comparable stores, in-line sales for stores less than 10,000 sf were $341 per square foot (psf) in 2014 compared to $328 psf in 2013. In-line sales for stores greater than 10,000 sf were $335 psf in 2013 compared to $292 psf in 2012.

The largest contributor to Fitch modeled losses, Gateway El Segundo loan (4.1% of pool), is secured by a 341,600 sf mixed-use property located in El Segundo, CA. The property has experienced a significant decline in both occupancy and cash flow, primarily due to the largest tenant downsizing and vacating a significant portion of its occupied space. As of the January 2015 rent roll, the property was 66% occupied compared 81% at year-end (YE) 2013. An additional 4.6% of the property square footage rolls during 2015. According to REIS and as of first quarter 2015 (1Q15), the LAX/El Segundo office submarket of Los Angeles reported a vacancy of 30.3% and asking rents of $29.35 psf, compared to in-place base rents of approximately $28 psf. There is very little leasing activity on the vacant spaces and many of these spaces have remained vacant for over a year. The loan is schedule to mature in September 2015.

The largest Fitch loan of concern, Shops at Sunset Place (7.6%), is secured by a 523,681 sf open-air lifestyle retail center located in Miami, FL. Although property occupancy and NOI have seen a slight uptick over the past two years, it still represents a significant decline from Fitch's expectations at issuance. As of the April 2015 rent roll, the property was 80.3% occupied, compared to 79.8% at YE 2014, 77.5% at YE 2013, 77.2% at YE 2012, 88.7% at YE 2011, and 91.5% at YE 2010. In-line sales at the property have also been declining. For comparable stores, in-line sales for stores less than 10,000 sf were $273 psf in 2013 compared to $291 psf in 2012. In-line sales for stores greater than 10,000 sf were $201 psf in 2013 compared to $218 psf in 2012. Near-term lease rollover includes an additional 1% of the total square footage in 2015 and 11% in 2016. According to REIS and as of 1Q15, the Coral Gables/Kendall retail submarket of Miami reported a vacancy of 10.2% and asking rents of $27.78 psf, compared to in-place base rents of approximately $20 psf.

RATING SENSITIVITIES

Rating Outlooks on classes A-1 through H remain Stable due to stable pool performance and expected continued paydown. Rating Outlooks on classes G and H were revised to Negative to reflect the pool's retail concentration (66% of pool) and concerns over property performance, tenancy and/or sales trends. Fitch will continue to monitor this concentration as well as the performance of the Fitch loans of concern. If performance deteriorates, negative rating actions are possible.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch has affirmed and revised Rating Outlooks on the following classes as indicated:

--$102.1 million class A-1 at 'AAAsf'; Outlook Stable;

--$243.1 million class A-2 at 'AAAsf'; Outlook Stable;

--$390.5 million class A-3 at 'AAAsf'; Outlook Stable;

--Interest-only class X-A at 'AAAsf'; Outlook Stable;

--$37.2 million class B at 'AAsf'; Outlook Stable;

--$53.7 million class C at 'Asf'; Outlook Stable;

--$33 million class D at 'BBB+sf'; Outlook Stable;

--$22 million class E at 'BBB-sf'; Outlook Stable;

--$16.5 million class F at 'BBsf'; Outlook Stable;

--$13.8 million class G at 'Bsf'; Outlook to Negative from Stable;

--$2.8 million class H at 'B-sf'; Outlook to Negative from Stable.

Fitch does not rate the class NR and interest-only class X-B certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Global Structured Finance Rating Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608

Additional Disclosures

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987392

Dodd-Frank Rating Information Disclosure Form

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987392

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Melissa Che
Director
+1-212-612-7862
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Christopher Bushart
Senior Director
+1-212-908-0606
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Melissa Che
Director
+1-212-612-7862
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Christopher Bushart
Senior Director
+1-212-908-0606
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com