NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded one class and affirmed 13 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 press release.
KEY RATING DRIVERS
The downgrade reflects an increase in the number of specially serviced loans (65.4% of the pool), higher loss expectations and a greater certainty of losses associated with those assets since Fitch's last rating action. The pool is highly concentrated with 10 assets remaining, eight (65.4%) of which are in special servicing.
Fitch modeled losses of 53.5% of the remaining pool; expected losses on the original pool balance total 13.5%, including $229.3 million (9.4% of the original pool balance) in realized losses to date. Fitch has designated the eight specially serviced loans (65.4%) as Fitch Loans of Concern. The largest loan (32.6%) and smallest loan (1.9%) continue to perform and mature in 2018.
As of the July 2016 distribution date, the pool's aggregate principal balance has been reduced by 92.3% to $188.7 million from $2.45 billion at issuance. No loans are defeased. Interest shortfalls are currently affecting classes B through P.
The largest contributor to expected losses is the specially-serviced Wachovia Tower loan (25.5%), which is secured by a 377,684 square foot (sf) office property built in 1985 and located in Baltimore, MD. The largest tenants: Wells Fargo Bank (21%), Whiteford, Taylor & Preston LLP (24%), and McGuire, Woods (8%), have lease expirations in 2022, 2019, and 2017, respectively.
The loan was transferred to special servicing in October 2015 due to imminent default. Per the special servicer, the property has produced negative cash flow in both 2014 and 2015 due to a reduction in space by several large tenants and a free rent period from August 2015 to October 2016 for the largest tenant. Most recently, the second largest tenant, Whiteford, Taylor & Preston LLP (50,000 SF), executed a lease extension/relocation, which will secure them at the property through 2029. Additionally, a new tenant signed a 15,000 sf lease, which will increase occupancy by 4% after the new tenant occupies the space later in 2016. The special servicer's strategy is to dual track foreclosure/receivership while continuing loan modification discussions with the borrower. The property is 72.6% occupied as of March 2016 with average rent of $23.48 psf. Per REIS, as of 1st Quarter (1Q) 2016, the Baltimore office market had a vacancy rate of 15.7% with average rent of $24.14 psf. There is 43% upcoming rollover in 2016 and 13% in 2017. The loan matured on May 1, 2016.
The next largest contributor to expected losses is the specially-serviced Blue Bell loan (11.3%), which is secured by a 123,440 sf office building located in Blue Bell, PA, approximately 15 miles north of Philadelphia. The largest tenants are Skanska USA Inc. LLC and Phoenixville Hospital Co LLC with lease expirations in August 2019 and April 2018, respectively. The building is 27% occupied as of May 2016 with an average rent of $24 sf and continues to be marketed for lease. The decline in performance was mainly due to a major tenant (33%) vacating in April 2015. The tenant paid a termination fee of approximately $415,000. Per the special servicer, high vacancies continue to plague the market with the submarket having a vacancy rate of 28%. Market rents are $17 sf for office space and $21 for medical office space. There have been no new leases signed in over a year.
The third largest contributor to expected losses is the performing Fiddler's Green Center loan (32.6%), which is secured by two six-story Class A office buildings totaling 414,693 sf located in the Denver, CO southeast submarket. The largest tenants are Charter Communications (39%), Fidelity Investments (24%) and Arthur J. Gallagher (6%), with lease expirations in January 2017, March 2023, and June 2016, respectively. An update on the Arthur J. Gallagher lease renewal was requested but was not received; however, the tenant continues to list the property as the address on their website. The property was 97.4% occupied as of December 2015 with an average rent of $21 sf. There is approximately 6% upcoming rollover in 2016 and 31% in 2017. Per REIS as of 1Q 2016, the Denver southeast office submarket vacancy is 19.2% with average asking rent of $19.58 sf.
The remaining classes are distressed and will see 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 has downgraded and revised the Recovery Estimate for the following:
--$129.6 million class A-J to 'Csf' from 'CCsf'; RE 65%.
Fitch also affirmed the following classes:
--$52 million class B at 'Csf'; RE 0%;
--$7.1 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, A-AB, A-4, A-1-A and A-M 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.
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
Dodd-Frank Rating Information Disclosure Form