Fitch Downgrades Distressed Classes of MSC 2006-HQ9; Outlooks Revised
KEY RATING DRIVERS
The downgrades reflect high loss expectations for the remaining loans in the pool. Affirmations reflect sufficient credit enhancement relative to high expected losses in the pool. The pool has 22 assets remaining, 13 of which are in special servicing (65.6%). Ten assets in special servicing are real estate owned or in foreclosure (28.7%). The transaction has incurred $154.9 million (6.0% of the original pool balance) in realized losses to date.
As of the August 2016 distribution date, the pool's aggregate principal balance has been reduced by 93.3% to $172.9 million from $2.6 billion at issuance. No loans are defeased.
The largest loan in the pool (34.7%) is a 257,844 square foot (sf) power center located in West Bloomfield, MI, outside of Detroit. The property is anchored by a Kohl's, Whole Foods and Dunham's Sports. The center is experiencing anchor tenant turnover with the closing of Staples in early 2016 and DSW being replaced by Stein Mart with an anticipated opening in October 2016. March 2016 occupancy of 100% is expected to decline to 92.5%. The loan transferred to special servicing in July 2016 due to litigation filed by the borrower. The servicer is finalizing terms of a forbearance agreement which would settle the recently filed litigation and allow the borrower to complete a refinance of the property. The loan is current as of the August 2016 remittance.
The second largest loan in special servicing (7.5%) is a 236,105 sf office property in Pittsburgh, PA. The collateral is a commercial condominium which includes a portion of the lobby and floors three through nine of the building. The remaining floors in the 21-story structure are owned by a third-party and operated as the Pittsburgh Marriot City Center Hotel. The loan transferred to special servicing in March 2014 due to the largest tenant vacating its space. As of May 2016, occupancy for the property was 15.3%. According to Reis' second-quarter report, the central business district (CBD) submarket of Pittsburgh had a vacancy rate of 15% with average asking rents of $23.66 psf. The subject underperforms the submarket with respect to average in-place rents.
The third largest loan in special servicing (7.3%) is a 114,449 sf retail property in Fairhaven, MA. The property was formerly anchored by grocery anchor, Shaw's Supermarket, which vacated 57% of the net rentable area (NRA) at lease expiration in February 2016. Current occupancy of the property is 20%. The loan transferred to special servicing in January 2016 and is in foreclosure. According to Reis' second-quarter report, the South Bristol County submarket of Boston had a vacancy rate of 9.2% with average asking rents of $18.77 psf. The subject underperforms the submarket with respect to average in-place rents.
Rating Outlook for the A-J class remains Stable based on continued amortization and paydown from liquidated loans. Negative Outlooks on classes B, C and D reflect the potential for downgrade should losses from loans in special servicing increase or pool performance decline materially. Upgrades are possible with additional paydown and better than expected resolutions on loans in special servicing. Downgrades to the distressed classes will occur as losses are realized.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch affirms the following classes and revises Outlooks as indicated:
--$35.3 million class C at 'BBsf'; Outlook to Negative from Stable;
--$28.9 million class D at 'Bsf'; Outlook to Negative from Stable.
Fitch downgrades the following classes:
--$22.4 million class E to 'CCsf' from 'CCCsf'; RE 50%;
--$25.7 million class F to 'Csf' from 'CCsf'; RE 0%;
--$24.6 million class G to 'Dsf' from 'Csf'; RE 0%.
Fitch affirms the following classes:
--$16.8 million class A-J at 'Asf'; Outlook Stable;
--$19.2 million class B at 'Asf'; Outlook Negative;
--$0 million class H at 'Dsf'; RE 0%;
--$0 million 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%;
--$0 class P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%.
Classes A-1, A-1A, A-2, A-3, A-AB, A-4, A-4FL, A-M, X-RC, ST-A, ST-B, ST-C, ST-D, and ST-E have paid in full. Fitch does not rate the class S, ST-F and DP certificates. Fitch previously withdrew the ratings on the interest-only class X and X-MP certificates.