Fitch Upgrades Class B-5 of DLJCM 1999-CG2
KEY RATING DRIVERS
The upgrade of class B-5 reflects increased credit enhancement and stable collateral performance since the last rating action, despite the pool's high concentration with 16 loans remaining.
As of the October 2015 distribution date, the pool's aggregate principal balance has been reduced by 98.6% to \\$21.8 million from \\$1.55 billion at issuance. Approximately 44.2% of the pool is fully amortizing. Multifamily properties represent 69.5% of the remaining collateral. Per the servicer reporting, two loans (3.5%) are fully defeased and no loans are in special servicing. Fitch has designated five loans (19.5%) as Fitch Loans of Concern. Interest shortfalls are currently affecting classes B-8 through C.
The largest contributor to expected losses (1.7% of the pool) is secured by a 99-unit multifamily property in Baytown, TX approximately 26 miles west of downtown Houston. The loan has been on the servicer's watchlist since 2003 due to low occupancy and low debt service coverage ratio (DSCR). Since 2009, occupancy has not exceeded 74% and DSCR has remained well below 1.0x. Earlier this year, the borrower increased advertising, offered concessions, and renovated units in efforts to lease up the property. Occupancy has begun to show signs of recovery at a reported 96% as of the June 2015 rent roll.
The largest Fitch Loan of Concern (9% of the pool) is secured by a 58,285 square foot (sf) retail center located in Houston, TX. The center is anchored by Party City, which leases 17.7% of the net rentable area (NRA) through June 2018. As of the October 2015 remittance, the loan is 30 days delinquent, and the servicer has indicated collection of payment is in process. The loan has amortized 75.2% to date since issuance in 1999. An update on current leasing activity and operating performance were requested but have not been received. Fitch will continue to monitor the loan as performance updates are received.
The Rating Outlook for class B-5 remains Stable due to increasing credit enhancement from continued pay down and partial repayment supported by defeased collateral. Further upgrades are limited due to the pool's increasing concentration risk and potential for adverse selection as loans refinance out of the pool. Additionally, there are no scheduled maturities until 2018.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch upgrades the following class as indicated:
--\\$2.7 million class B-5 to 'Asf' from 'BBBsf'; Outlook Stable.
Fitch affirms the following classes as indicated:
--\\$19 million class B-6 at 'Dsf'; RE 95%;
--\\$0 class B-7 at 'Dsf'; RE 0%;
--\\$0 class B-8 at 'Dsf'; RE 0%.
The class A-1A, A-1B, A-2, A-3, A-4, B-1, B-2, B-3, and B-4 certificates have paid in full. Fitch does not rate the class C certificates. Fitch previously withdrew the rating on the interest-only class S certificates.