Fitch Downgrades Five Classes of GCCFC 2004-GG1
KEY RATING DRIVERS
The downgrades reflect an increase in Fitch-modeled losses in the remaining pool, the high concentration with only 8 loans remaining, as well as the continued underperformance of the largest remaining loan (59.6% of the pool). Fitch modeled losses of 41.4% for the remaining pool; expected losses as a percentage of the original pool balance are at 4.16%, including losses already incurred to date (1.41%). Fitch has designated five loans (79.5%) as Fitch Loans of Concern, which includes the four specially serviced loans (32.06%).
As of the January 2015 distribution date, the pool's aggregate principal balance has been reduced by approximately 93.4% to \$172.8 million from \$2.63 billion at issuance. Interest shortfalls total \$8.64 million and affect class P through G. No loans are currently defeased.
The largest contributor to modeled losses, 400 West Market Street, formerly known as the Aegon Center (59.6%), is secured by a 35-story, 633,650 square foot (sf) multi-tenant office tower in the Louisville, KY, central business district. A loan modification was completed in November 2013 after the building lost the largest tenant, Aegon, and imminent default was expected due to the upcoming loan maturity of April 2014. The terms of the modification included an A/B Note split of \$82 million for A portion and \$21.8 million for the B portion, a reduced interest payment rate of 4% with periodic step-ups and a loan extension of 60 months to April 2019. The sponsor rebranded the building in 2014 and is working diligently to secure new tenants in order to increase occupancy. Occupancy remains at 72% and no new tenants have been signed since the modification. The tenant roster will remain stable with only two tenant leases, Humana Insurance Company (6.28% of the Net Rentable Area) and Ernst & Young (4.4%), scheduled to expire prior to the loan maturity. The loan continues to perform under the modified terms.
The second-largest contributor to modeled losses, Severance Town Center (12.3%), is secured by a 644,501 sf retail center located in Cleveland Heights, OH, along Mayfield Road and is in close proximity to the Cleveland Clinic and John Carroll University. The subject was transferred to the special servicer January 2014 after an anchor tenant, Wal-Mart, relocated to a stand-alone site in the area. Wal-Mart continues to make rental payments on its lease which expires in Jan. 2019. A number of new leases were signed in an attempt to stabilize the property after the sponsor failed to pay-off the loan by the scheduled maturity in April 2014. As of year-end 2014, economic occupancy was 81.2%% and physical occupancy was 60.6%. A receiver was appointed by the courts at the beginning of February and the special servicer is pursuing a dual track work-out strategy as the foreclosure process proceeds through the courts.
The third-largest contributor to modeled losses is the real estate owned Skillman Abrams Shopping Center (4% of the pool), a 133,088-sf anchored retail center located in Dallas, TX. The loan transferred to the special servicer on Feb. 12, 2013 for imminent monetary default after the grocery anchor vacated the center to relocate to a new location in the market. The occupancy at the center dropped to a low of 27% during the last quarter of 2013 after another tenant vacated as result of the anchor leaving the property. Foreclosure was completed in second half of 2013 and the special servicer is working to find a new anchor tenant before exploring disposition options.
RATINGS SENSITIVITIES
The Outlook for class E is Stable due to high credit enhancement and no additional rating changes are expected. The class will remain at 'A' due to previously incurred interest shortfalls. The Negative Outlook for classes F and G reflects concerns that the classes could be subject to further downgrades should the largest loan experience further performance deterioration due to tenant lease expirations. Classes H through O may incur additional downgrades if expected losses increase or losses are realized.
Fitch downgrades the following classes:
--\$9.4 million class G to 'BBsf' from 'BBBsf'; Outlook Negative;
--\$39 million class H to 'CCCsf' from 'Bsf'; RE 80%;
--\$6.5 million class J to 'CCsf' from 'CCCsf'; RE 0%;
--\$13 million class K to 'CCsf' from 'CCCsf'; RE 0%;
--\$13 million class L to 'Csf' from 'CCsf'; RE 0%.
Additionally, Fitch affirms the following classes and revises Rating Outlooks as indicated:
--\$32.5 million class E at 'Asf'; Outlook Stable;
--\$32.5 million class F at 'BBBsf'; Outlook to Negative from Stable;
--\$9.8 million class M to 'Csf'; RE 0%;
--\$9.8 million class N to 'Csf'; RE 0%;
--\$6.5 million class O at 'Csf'; RE 0%.
Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, B, C, D, OEA-B1, and OEA-B2 have repaid in full. Fitch does not rate \$6.7 million class P. Classes XC and XP were previously withdrawn.
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