Fitch Upgrades 3 Classes of BACM 2007-3
KEY RATING DRIVERS
The upgrades are due to additional paydown, defeasance, and increased credit enhancement since Fitch's last rating action. The affirmations are due to continued stable performance of the underlying collateral. Fitch modeled losses of 8.9% of the remaining pool; expected losses on the original pool balance total 10.2%, including $175.4 million (5% of the original pool balance) in realized losses to date. Fitch has designated 29 loans (24.5%) as Fitch Loans of Concern, which includes eight specially serviced assets (7.5%).
As of the July 2016 distribution date, the pool's aggregate principal balance has been reduced by 41.5% to $2.06 billion from $3.52 billion at issuance. Per the servicer reporting, six loans (1.7% of the pool) are defeased. Interest shortfalls are currently affecting classes H through S.
There was a variance from criteria related to classes A-M, A-MF, and A-MFL. The surveillance criteria indicated that rating upgrades were possible for these classes. However, Fitch has determined that rating upgrades are not warranted at this time due to upcoming maturity concentration risk and the junior position and thickness of the three A-M classes relative to the more senior classes.
The largest contributor to expected losses is the Pacifica Tower loan (8.1% of the pool), which is secured by a 326,384 square foot (sf) office tower that is part of the Plaza at La Jolla office development, a six-building property that features 825,000 sf of office space spread over 17 acres located in the Golden Triangle/University Town Center (UTC) submarket of San Diego, CA. The largest tenants are DLA Piper LLP (14%) with lease expiration in June 2020, Wells Fargo Bank (12%; November 2018), and CB Richard Ellis, Inc. (10%; August 2016). Although, occupancy remains stable, the property is very highly leveraged at $509 per square foot (psf). The most recent servicer-reported debt service coverage ratio (DSCR) as of March 2016 is 0.81x with occupancy of 98.9% and average rental rates at $38.25 psf. Per REIS, as of the second quarter of 2016, the La Jolla submarket vacancy is 10.7% with average asking rent $37.63 psf.
The next largest contributor to expected losses is the Stonecrest Marketplace loan (1.7%), which is secured by a 264,609 sf retail property located in Lithonia, GA, an eastern suburb of Atlanta. The largest tenants include Big Lots (lease expiry 2019), Babies R Us (2018), Ross Stores (2018), Marshalls (2018), and DSW (2018). As of December 2015, the property's occupancy has improved to 93.7%. There is approximately 27% upcoming rollover in 2017 and 44% in 2018. Although occupancy has improved, the servicer-reported year-end 2015 DSCR remains low due to two tenants with free-rent periods. The most recent servicer-reported DSCR as of year-end 2015 is 1.04x.
The third largest contributor to expected losses is the specially-serviced North Park Business Park Portfolio 3 loan (0.7%), which is secured by two office buildings (with an aggregate rentable area of 173,501 sf) located within the North Park Business Park in Omaha, NE. Building 4A and 4B (contiguous structures which share a common lobby) consist of 102,072 sf and Building 5 consists of 71,429 sf. The asset remains specially serviced since 2012 and is currently real estate owned (REO). The largest tenants are Chicago Title Insurance Co and United Healthcare Services with respective lease expirations in 2020 and 2022. The property is 87% occupied as of June 2016. The most recent servicer-reported DSCR as of June 2016 is 0.89x. Per the special servicer, the asset is anticipated to be marketed for sale in the near term.
Rating Outlooks on classes A-4 through A-J remain Stable due to increasing credit enhancement and continued paydown. Upgrades may occur on the A-M classes should additional paydown and defeasance continue without further significant defaults. Ratings on the distressed classes may be 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 upgraded and assigned Rating Outlook to the following classes:
--$241.7 million class A-J to 'BBBsf' from 'BBsf'; Outlook Stable;
--$35.2 million class B to 'BBsf' from 'Bsf'; Outlook Stable;
--$48.3 million class C to 'Bsf' from 'CCCsf'; Outlook Stable.
Fitch also affirmed and revised REs to the following classes as indicated:
--$716.9 million class A-4 at 'AAAsf'; Outlook Stable;
--$50 million class A-5 at 'AAAsf'; Outlook Stable;
--$410.2 million class A-1A at 'AAAsf'; Outlook Stable;
--$116.6 million class A-M at 'AAsf'; Outlook Stable;
--$100 million class A-MF at 'AAsf'; Outlook Stable;
--$135 million class A-MFL at 'AAsf'; Outlook Stable;
--$26.4 million class D at 'CCCsf'; RE 100%;
--$26.4 million class E at 'CCsf'; RE 40%;
--$35.2 million class F at 'CCsf'; RE 0%.
--$30.8 million class G at 'Csf'; RE 0%;
--$48.3 million class H at 'Csf'; RE 0%;
--$35.2 million class J at 'Csf'; RE 0%;
--$451,972 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%;
--$0 class P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%.
Fitch does not rate the class S certificates. Classes A-1, A-2, A-2FL, A-3, and A-AB certificates have paid in full. Fitch previously withdrew the rating on the interest-only class XW certificates.