Fitch Upgrades 4 Classes of MSC 2003-IQ5
KEY RATING DRIVERS
The upgrades to class H through L are due to increased credit enhancement as a result of continued paydown. The upgrades also reflect the strong performance of the largest loan, 3 Times Square, which accounts for 63.5% of the pool and is fully amortizing. The affirmations of class M and N reflect the concentrated nature of the pool and the stable performance of the remaining loans. Fitch modeled losses of 4.2% of the remaining pool; expected losses on the original pool balance total 0.8%, including $5.1 million (0.7% of the original pool balance) in realized losses to date. Fitch has designated two loans (15.7%) as Fitch Loans of Concern, which does not include any specially serviced loans.
The pool is concentrated with only 17 loans remaining, all of which are fully amortizing. As of the December 2015 distribution date, the pool's aggregate principal balance has been reduced by 96.6% to $26.2 million from $778.8 million at issuance. No loans are defeased. Interest shortfalls are currently affecting class O.
The largest loan in the pool is the $16.6 million pari-passu portion of 3 Times Square (totaling $80.8 million). Built in 2001, the property is 100% occupied and its largest tenants include Reuters (78% of net rentable area; NRA), BMO Harris Bank (18%) and JP Morgan Chase (2%). As of June 2015, the debt service coverage ratio (DSCR) was reported to be 1.75x. The loan is fully amortizing through its October 2021 maturity date.
The second largest loan is a Fitch Loan of Concern and is secured by a 50,959 square foot (sf) retail property in Arlington, TX (12.1%). The property is adjacent to a Super Target and across from The Parks at Arlington, a 1.5 million sf regional mall anchored by Macy's, Nordstrom, JC Penney and Dillard's. The property tenants include Chili's (12% of NRA), Sleep Experts (10% of NRA), Catherine's (10% of NRA) and Corner Bakery (7% of NRA). As of September 2014, occupancy was reported at 85%, which is an improvement from the 66% reported in September 2014. The DSCR has been 1.0x or below since 2011, primarily due to occupancy issues and decreasing market rental rates. As of September 2015, the DSCR was reported at 0.89x. Despite the low DSCR and occupancy issues, the loan has remained current.
The other Fitch Loan of Concern is secured by a 25,232 suburban office building located in Richmond, VA (3.6%). The collateral is a two-story office building that was built in 1974 and renovated in 1995. The largest tenant (40% of NRA) is affiliated with the loan's sponsor. The lease expired in April 2014 and is now month-to-month. Per the master servicer inspection from July 2015, the property is 100% occupied. As of year-end 2014, the DSCR was reported at 0.92x, but the loan has remained current.
RATING SENSITIVITIES
Rating Outlooks on classes G through N remain Stable due to increasing credit enhancement and overall stable collateral performance. Future upgrades may be warranted as the pool continues to pay down. Downgrades are possible if there is a material economic or asset level event which impairs performance of the remaining loans.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch upgrades the following classes:
--$5.8 million class H to 'AAAsf' from 'AAsf'; Outlook Stable;
--$2.9 million class J to 'AAAsf' from 'Asf'; Outlook Stable.
--$4.9 million class K to 'Asf' from 'BBBsf'; Outlook Stable;
--$2.9 million class L to 'BBBsf' from 'BBsf'; Outlook Stable.
Fitch affirms the following classes as indicated:
--$4 million class G at 'AAAsf'; Outlook Stable;
--$1.9 million class M at 'Bsf'; Outlook Stable;
--$974,000 class N at 'B-sf'; Outlook Stable.
The class A-1, A-2, A-3, A-4, B, C, D, E and F certificates have paid in full. Fitch does not rate the class O certificates.
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