Fitch Affirms MSC 2007-IQ16

CHICAGO--()--Fitch Ratings has affirmed 20 classes of Morgan Stanley Capital I Trust (MSC 2007-IQ16) commercial mortgage pass-through certificates series 2007-IQ16.

KEY RATING DRIVERS

The affirmations reflect the overall stable performance of the pool. Fitch modeled losses of 6.6% of the remaining pool; expected losses on the original pool balance total 12.8%, including $217.9 million (8.4% of the original pool balance) in realized losses to date. Fitch has designated 41 loans (14.2%) as Fitch Loans of Concern, which includes six assets in special servicing (2.4%).

As of the June 2016 distribution date, the pool's aggregate principal balance has been reduced by 33.1% to $1.74 billion from $2.6 billion at issuance. Per the servicer reporting, 11 loans (4.8% of the pool) are defeased. Interest shortfalls are currently affecting class E.

Approximately, 99.5% of loans in the pool are scheduled to mature in 2017, primarily concentrated in the third (56%) and fourth quarter (34%). The pool has a high concentration of retail assets (44.4% of the pool) including three regional enclosed malls (23%). The malls' performance is stable, but each had occupancy declines at the most recent reporting, two of which are detailed below.

The largest loan in the pool, West Town Mall (19.2% of pool), is secured by a 760,760 sf enclosed regional mall in Knoxville, TN. As of the March 2016 rent roll, property occupancy declined to 93% from 97% at year-end (YE) 2015 with NOI DSCR decreasing to 1.73x from 1.76x in the same period. The recent decline in occupancy since YE 2015 is due to five in-line tenants vacating at their scheduled lease expiration. The mall continues to face competition from the nearby Turkey Creek retail development which is approximately seven miles west of the subject property. Several anchor tenants at the subject including Belk's, JCPenney and Regal Cinema have a duplicate presence at the competing retail development.

The fifth largest loan in the pool is secured by the Bangor Mall, a 536,299 sf enclosed regional mall in Bangor, ME. As of the YE 2015 rent roll, property occupancy declined to 95% from 98% year-over-year with NOI DSCR decreasing to 1.83x from 1.93x. Several tenants vacated at lease expiration in 2015 including Hallmark, Gap and New York & Company. Although the mall has limited direct department store competition in the surrounding area, the mall has a tertiary location with declining anchor sales coupled with near-term expirations.

The largest loan in special servicing is a portfolio of two retail properties totaling 187,416 sf located in Barkhamsted and Meriden, CT. The loan transferred to special servicing in 2012 due to monetary default. Portfolio occupancy as of January 2016 declined to 71% from 84% after Peebles vacated at lease expiration. An environmental issue at the Barkhamsted property is being reviewed by environmental counsel. The portfolio has upcoming rollover with 9% scheduled to expire in 2016 and an additional 11% in 2017. The servicer is working with the borrower on a stipulated foreclosure.

RATING SENSITIVITIES

Rating Outlooks on classes A-1A through A-MA remain Stable due to increasing credit enhancement and continued paydown of the classes. Stable Outlooks on the A-M classes reflect stable performance of the pool and sufficient credit enhancement given the large concentration of maturities in 2017. Upgrades to the A-M classes are possible should performance of the pool continue to trend upward and a substantial portion of the pool successfully refinances at maturity. The distressed classes (those rated below 'B-sf') are subject to further downgrades as losses are realized.

DUE DILIGENCE USAGE

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

Fitch affirms the following classes:

--$118.2 million class A-1A at 'AAAsf'; Outlook Stable;

--$1.1 billion class A-4 at 'AAAsf'; Outlook Stable;

--$194.7 million class A-M at 'Asf'; Outlook Stable;

--$20 million class A-MFL at 'Asf'; Outlook Stable;

--$44.9 million class A-MA at 'Asf'; Outlook Stable;

--$131 million class A-J at 'CCCsf'; RE 85%;

--$30 million class A-JFX at 'CCCsf'; RE 85%;

--$33.7 million class A-JA at 'CCCsf'; RE 85%.

--$19.5 million class B at 'CCsf'; RE 0%;

--$26 million class C at 'Csf'; RE 0%;

--$16.2 million class D at 'Csf'; RE 0%;

--$38.5 million class E at 'Dsf'; RE 0%;

--$6 million 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%.

Fitch does not rate the class O, P, Q and S certificates. Fitch previously withdrew the ratings on the interest-only class X-1, X-2, and A-JFL certificates. Classes A-1, A-2, and A-3 have paid in full.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008286

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008286

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
David Ro
Director
+1-312-368-3132
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
David Ro
Director
+1-312-368-3132
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com