Fitch Upgrades One Class of WBCMT 2006-C28
KEY RATING DRIVERS
The upgrade reflects improved performance of the pool primarily driven by leasing momentum at the Gas Company Tower contributing to lower expected losses. The affirmations reflect sufficient credit enhancement (CE) relative to Fitch expected losses. Fitch modeled losses of 8.8% of the remaining pool; expected losses on the original pool balance total 12.7%, including \\$260.9 million (7.6% of the original pool balance) in realized losses to date. Fitch has designated 30 loans (11.6%) as Fitch Loans of Concern, which includes four specially serviced assets (4.1%).
As of the January 2016 distribution date, the pool's aggregate principal balance has been reduced by 42.1% to \\$2.09 billion from \\$3.6 billion at issuance. Per the servicer reporting, 11 loans (7% of the pool) are defeased. Interest shortfalls are currently affecting class F.
The largest contributor to expected losses is The Gas Company Tower loan (11%), which is secured by a 1.3 million square foot (sf) class A office tower in downtown Los Angeles, CA. The building has experienced positive leasing momentum with the signing of two large leases. The new tenants include WeWork signing a lease for 92,000 sf in late 2015 and a 112,000 sf lease with Deloitte (8.5%) in 2014. Occupancy is expected to improve to 90% from occupancy of 73.5% as of December 2014. According to Reis' December 2015 report, the CBD submarket of Los Angeles had an office vacancy rate of 13.0% with average asking rents of \\$35.97 psf as compared to 15.5% and \\$34.54 psf in 2014. The loan is sponsored by Brookfield Office Properties.
The next largest contributor to expected losses is the Westin Falls Church asset (2.9%), which is a 405-room full-service hotel in Falls Church, VA. The loan transferred to special servicing in June 2014 due to imminent default. Performance of the hotel has yet to achieve projected performance metrics upon rebranding as a Westin and continues to be challenged with weakening demand from federal contractors and government employees. In addition to waning demand, the development of Metrorail stations on the Silver Line has sparked additional supply in the market. The hotel continues to underperform its competitive set with December 2015 trailing 12-month occupancy, average daily rate (ADR) and revenue per available room (RevPAR) of 63.0%, \\$149.11 and \\$93.88, respectively, as compared to competitive set averages of 74.2%, \\$150.22, and \\$111.40. A receiver was appointed in January 2015 and the servicer is exploring resolution options.
The third largest contributor to expected losses is a 121,512 sf mixed-use office and retail property (0.6%) located in St. Cloud, MN. Performance of the property has declined with the most recently reported occupancy of 68%. The servicer has filed a breach claim against the contributor of the loan which has subsequently been appealed. The servicer is awaiting a ruling on the appeal and foreclosure proceedings are on hold pending result of the ruling. Fitch anticipates a long resolution horizon due to litigation surrounding the loan.
Rating Outlooks remain Stable due to increasing credit enhancement and continued paydown of the pool. The Outlook on class A-M was revised to Stable from Negative to reflect the performance improvement of the pool, in particular related to positive leasing progress at the Gas Company Tower. Distressed classes (those rated below 'B') may be subject to further downgrades as additional losses are realized.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch upgrades the following class and revises the Rating Outlook as indicated:
--\\$359.5 million class A-M to 'Asf' from 'BBBsf'; Outlook to Stable from Positive.
Fitch affirms the following classes and assigns REs as indicated:
--\\$676.4 million class A-4 at 'AAAsf'; Outlook Stable;
--\\$392.4 million class A-1A at 'AAAsf'; Outlook Stable;
--\\$210.8 million class A-4FL at 'AAAsf'; Outlook Stable;
--\\$278.6 million class A-J at 'CCCsf'; RE 95%.
--\\$22.5 million class B at 'CCsf'; RE 0%;
--\\$58.4 million class C at 'Csf'; RE 0%;
--\\$31.5 million class D at 'Csf'; RE 0%;
--\\$49.4 million class E at 'Csf'; RE 0%;
--\\$5.8 million class F at 'Dsf'; RE 0%;
--\\$0 class G at 'Dsf'; RE 0%;
--\\$0 class H at 'Dsf'; RE 0%;
--\\$0 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%.
The class A-1, A-2, A-PB and A-3 certificates have paid in full. Fitch previously withdrew the rating on the interest-only class IO certificates. Fitch does not rate the class Q and FS certificates.