Fitch Affirms COMM 2006-C7; Removes Class A-M From Rating Watch Negative

NEW YORK--()--Fitch Ratings has affirmed 17 classes of COMM Mortgage Trust commercial mortgage pass-through certificates series 2006-C7. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations and removal of class A-M from Rating Watch Negative reflects sufficient credit enhancement (CE) relative to Fitch expected losses due to additional paydown and defeasance since Fitch's last rating action. Fitch modeled losses of 14.7% of the remaining pool; expected losses on the original pool balance total 18.4%, including $229.3 million (9.4% of the original pool balance) in realized losses to date. Fitch has designated 30 loans (30.3%) as Fitch Loans of Concern, which includes four specially serviced assets (3.6%). Approximately 9% of the non-specially serviced pool is scheduled to mature in 2015 and an additional 91% matures through June 2016.

As of the July 2015 distribution date, the pool's aggregate principal balance has been reduced by 38.3% to $1.51 billion from $2.45 billion at issuance. Per the servicer reporting, 23 loans (26.6% of the pool) are defeased. Interest shortfalls are currently affecting classes B through P.

The largest contributor to expected losses is the 700 South Flower Plaza loan (8.1% of the pool), which is secured by a 32 story, mixed-use (office/retail) property totaling 1.8M sf consisting of 402,926 sf of office space, a 240,000 sf Macy's Dept. store, a Sheraton Hotel (495 rooms) and 115k of retail, and 2,000 parking spaces located in the Los Angeles, CA CBD. The hotel is not part of the collateral. The largest three tenants are Macy's (23% of NRA, rated 'BBB+' by Fitch), which recently renewed their space through 2025; Lozano Enterprises (5.5%), lease expires May 31, 2019; Farmers Insurance (4%), lease experation Jan. 31, 2024. Property performance originally declined as a result of Bank of NY vacating their space in March 2012. The loan was assumed in April 2013. The sponsor, Wayne Ratkovich is investing $160 million to renovate the shopping, hotel and office complex. Per the master servicer, elevator upgrades are about 50% complete and the remainder is expected to be fully completed by the end of August 2015. As of the May 2015 rent roll, occupancy remains stable at 62%. At Fitch's previous Rating Watch Negative action, Macy's had not yet renewed their space. Per the master servicer, the borrower has not provided any additional updates on leasing activity. There is approximately 49% upcoming rollover in 2015.

The next largest contributor to expected losses is the Fiddler's Green Center loan (4.1%), which is secured by two six-story Class A office buildings totaling 415,149 sf located in the Southeast submarket of Denver, Greenwood Village, CO. The largest tenants are Charter Communications (36%), lease expirations in December 2017, October 2020; and Fidelity Investments (24%), expiration March 2023. Aetna Life Insurance Company (formerly 9%), had a lease expiration in December 2014 and vacated. Per the master servicer, Fidelity Investments is currently occupying the space vacated by Aetna. The property has previously suffered declines in performance due to tenant turnover combined with lower base rents. Per the December 2014 rent roll, the property is 89% occupied with average rent $21 sf. There is approximately 5% upcoming rollover in 2015. Per REIS as of 2Q 2015, the Denver southeast office submarket vacancy is 20% with average asking rent $19 sf.

The third largest contributor to expected losses is the specially-serviced and real estate owned Blue Bell (1.5%), which is a 125,000 sf office building located in Blue Bell, PA, approximately 15 miles north of Philadelphia. The building is 27% occupied as of June 2015 with average rent $24 sf and continues to be marketed for lease. The largest tenants are Skanska USA Inc LLC and Phoenixville Hospital Co LLC with lease expirations in April 2018 and Aug 2019 respectively. A major tenant which occupied (33%) of the building, vacated in April 2015 prior to lease expiration and paid a termination fee of approximately $415,000. Several proposals for leases are under consideration; however, no new leases have been signed in over a year. The property continues to lag the market with low occupancy. Overall high vacancies continue to plague the market with the submarket having a vacancy rate of 28%. Market rents are at $17 sf for office and $21 for medical office. The last property inspection showed property to be in good condition. Capital improvements to main lobby and marketing office commenced in the spring 2015. The last reported appraisal in June 2014 was significantly higher than the current reported valuation due to the unexpected vacating of this major tenant years prior to their lease expiration.

RATING SENSITIVITIES

Rating Outlooks on classes A-4 and A-1A remain Stable due to increasing credit enhancement resulting from defeasance and continued amortization and paydown. The Outlook for Class A-M was revised to Negative due to the limited progress on leasing activity associated with the largest loan in the pool; however, the ratings reflect conservative loss assumptions on this loan. Downgrades are possible if performance significantly declines on the largest loan, loans in special servicing, or if additional loans default.

Fitch affirms and removes from Rating Watch the following classes and assigns and revises Rating Outlooks and REs as indicated:

--$244.7 million class A-M at 'Asf'; removed from Rating Watch Negative; assigned Negative Outlook;

--$189.7 million class A-J at 'CCsf'; RE 25%.

Fitch also affirms the following classes:

--$827.4 million class A-4 at 'AAAsf'; Outlook Stable;

--$178.6 million class A-1-A at 'AAAsf'; Outlook Stable;

--$52 million class B at 'Csf'; RE 0%;

--$18.4 million class C at 'Dsf'; RE 0%;

--$0 class D at 'Dsf'; RE 0%;

--$0 class E at 'Dsf'; RE 0%;

--$0 class F at 'Dsf'; RE 0%;

--$0 class G at 'Dsf'; RE 0%;

--$0 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 O 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 certificates. Fitch previously withdrew the rating on the interest-only class X certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

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

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989210

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989210

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Lisa Cook
Director
+1 212-908-0665
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Lisa Cook
Director
+1 212-908-0665
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com