Fitch Downgrades One Distressed Class of BSCMS 2006-PWR14; Maintains Outlooks
KEY RATING DRIVERS
The downgrade of class D to 'Csf' from 'CCf' is due to greater certainly of losses affecting the class, as additional loans have transferred to special servicing since the last review. Affirmations on the remaining classes are due to sufficient credit enhancement relative to expected losses. Fitch modeled losses of 8.3% of the remaining pool. Total expected losses based on the original pool balance are 11.2%, including 5.4% realized losses to date. Fitch designated 52 loans (27.7%) as Fitch Loans of Concern, which includes six specially serviced loans (4.3%).
As of the September 2015 distribution date, the pools' aggregate principal balance has been reduced by 30.3% to \\$1.72 billion from \\$2.5 billion at issuance. Interest shortfalls are affecting classes D through P, with the exception of classes J and K. Thirteen loans (10.7%) are defeased, including the third (3.9%) and the fourth (3.8%) largest loans in the pool.
The largest contributor to Fitch's modeled losses (3.7%) is a loan secured by a 390,957 square foot (sf) shopping center located in Cincinnati, OH. The property has been experiencing declining occupancy since 2010. Per the September 2015 rent roll, the property was 76.2% occupied, compared to 83% at year-end (YE) 2014 and 100% at issuance. In addition to lower revenue due to reduced occupancy, the loan began amortizing at the beginning of 2013 after its partial interest-only (IO) period expired, which has put additional stress on the property's cash flow. The servicer reported second quarter (2Q) 2015 debt service coverage ratio (DSCR) was 1.08x, compared to 1.02x at year-end (YE) 2014 and 1.44x at issuance.
The second largest contributor to Fitch's modeled losses (2.3%) is an interest only (IO) loan secured by a 165,872 sf retail center located in Brookfield, WI. The loan was transferred to special servicing in June 2015 due to concerns of imminent default and a lack of funding required for leasing cost commitments. The loan is experiencing declining net operating income primarily due to an increase in operating expenses. The servicer reported YE2014 DSCR was 1.08x, compared to 1.22x at issuance. Per YE2014 rent roll, the property was 100% occupied, unchanged since issuance.
The third largest contributor to Fitch's modeled losses (5.9%) is an IO loan secured by 418,026 sf of an office building located in the Newark, NJ central business district. In October 2013, the loan was modified into an A/B note structure and the term of the loan was extended 72 months to December 2017. Based on June 2015 rent roll, the collateral was 96% occupied, increased from 90% at YE2014. The increase was primarily due to a new tenant which signed a 10-year lease for 19,306 sf (4.6% of the collateral) effective June 2015. The collateral was 98% occupied at issuance.
Ratings on classes A4 and A1-A are expected to remain stable due to sufficient credit enhancement. Fitch maintains the Negative Outlook on the class A-M notes due to continued concerns on the South Bay Galleria (5%), the largest loan in the pool.
The loan is secured by 388,400sf of a regional shopping center located in Redondo Beach, Los Angeles, CA. The mall's anchor Kohl's owns its own store. The other two anchors of the property are Macy's and Nordstrom, which are on ground leases and are not part of the collateral. Nordstrom has relocated to a newly developed store at a retail center that is approximately three miles south of the property. There are nine tenants at the subject property that have co-tenancy clause related to Nordstrom; however, at the time of the review, none of these tenants have announced an intention to exercise their rights under the clause. The sponsor has expressed interest in renovating the property to improve its appeal and attract new tenants. Fitch will continue to monitor the performance of the loan.
Downgrades to the distressed classes (those rated below 'B') are likely as losses are realized on specially serviced loans.
Fitch has downgraded the following class:
--\\$37 million class D to 'csf' from 'CCsf'; RE 0%.
Fitch has affirmed the following classes:
--\\$920 million class A-4 at 'AAAsf'; Outlook Stable;
--\\$192.9 million class A-1A at 'AAAsf'; Outlook Stable;
--\\$246.8 million class A-M at 'AAAsf'; Outlook Negative;
--\\$222.1 million class A-J at 'CCCsf/RE 95%';
--\\$46.3 million class B at 'CCCsf'; RE 0%;
--\\$24.7 million class C at 'CCsf'; RE 0%;
--\\$21.6 million class E at 'Csf'; RE 0%
--\\$9.1 million class F at 'Dsf'; RE 0%
Fitch does not rate class P. Class A-1, A-2, A3 and A-AB have paid in full. Class G, H, J, K, L, M, N, and O are affirmed at 'Dsf/RE 0%' due to losses incurred. Fitch has previously withdrawn the ratings on the interest-only classes X-1, X-2 and X-W.