Fitch Affirms GECMC 2006-C1
KEY RATING DRIVERS
The affirmations reflect the concentrated nature of the pool and the uncertainty of losses from the specially serviced assets. Of the remaining 18 loans, Fitch has designated nine loans (78.8%) as Fitch Loans of Concern, all of which are specially serviced. Fitch modeled losses of 39.3% of the remaining pool; expected losses on the original pool balance total 10%, including \\$75 million (4.7% of the original pool balance) in realized losses to date. 25% of the remaining pool is scheduled to mature by March 2016.
As of the January 2016 distribution date, the pool's aggregate principal balance has been reduced by 86.5% to \\$216.8 million from \\$1.61 billion at issuance. No loans are defeased. Interest shortfalls are currently affecting classes B through P.
The largest contributor to expected losses, which remains the same since the last rating action, is the largest specially serviced asset, 33 Washington (23.4% of pool). The asset is a 19-story, 447,072 square foot (sf) office building located in the central business district of Newark, NJ. The loan was transferred to special servicing in November 2011 due to delinquent payments. The asset became real-estate owned (REO) in May 2013.
Vacancy continues to be a major concern at the property. According to the December 2015 rent roll, the property was 18% occupied with five tenants, down from 32.9% at year-end (YE) 2012 and representing a significant decline from 94.6% at issuance. Horizon Healthcare Services, Inc. (7.9% of NRA) vacated upon the lease expiration in October 2014. The largest remaining tenant is The State of New Jersey Department of Treasury (8.7% of NRA), which has a lease expiration in September 2017 and has expressed a desire to remain at the property. The second largest remaining tenant is Air Express International (6.5% of NRA), which renewed their lease for three years through August 2017. The servicer reports that leasing efforts are ongoing and the plan is to hold the asset in the near term as the vacancy issues are addressed. The latest reported valuation indicates significant losses upon liquidation, which may occur in the fourth quarter of 2016 according to the servicer.
The next largest contributor to expected losses is the \\$50.0 million (23.1% of the pool) pari-passu portion of the James Center loan (total loan amount of \\$150.0 million). The loan is secured by three adjacent class-A office buildings totaling approximately one million sf in the CBD of Richmond, VA. It was transferred to the special servicer in June 2014 for imminent default due to a major tenant vacating. McGuireWoods, LLP, occupied 25% of the NRA and vacated upon their lease expiration in August 2015. The second and third largest tenants, Wells Fargo Bank, N.A. (16% of NRA) and Davenport & Company, LLC (8% of NRA), are both on long term leases through Feb. 2020 and Jan. 2022, respectively. The servicer had reported that a modification was being discussed, but the dialogue has ceased and the servicer is proceeding to exercise the lender's rights and remedies, including foreclosure. Recent leasing activity, including a tenant expansion and two new leases, has increased occupancy to 70% as of February 2016.
The third largest specially serviced asset is Grand Marc at Riverside (19.3%), a 212 unit, 756 bed student housing property located in Riverside, CA. The property is located one mile from the University of California at Riverside and approximately three miles from the Riverside Community College. Foreclosure was completed and the asset became REO in March 2014. As of the December 2015 rent roll, the property was 100% occupied, representing a significant increase from the 44% reported on the July 2013 rent roll and 65% at year-end 2012. Occupancy is back to historical levels, which was 92% in 2011, 98% in 2010, and 97% in 2009. The servicer included the property in a January auction, but the winning bidder has since defaulted. Disposition plans are now being reevaluated.
The Negative Rating Outlook on class A-J reflects the uncertainty and timing surrounding the workout of the specially serviced assets and the possibility for a downgrade should realized losses exceed Fitch's expectations. An upgrade, however, is possible if recoveries are better than expected. Distressed classes (those rated below 'B') will be subject to downgrades as losses are realized.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch affirms the following classes:
--\\$118.2 million class A-J at 'Bsf'; Outlook Negative;
--\\$36.2 million class B at 'CCsf'; RE 30%;
--\\$14.1 million class C at 'Csf'; RE 0%;
--\\$24.1 million class D at 'Csf'; RE 0%;
--\\$14.1 million class E at 'Csf'; RE 0%;
--\\$10.1 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%.
The class A-1, A-2, A-3, A-AB, A-4, A-1A and A-M certificates have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the rating on the interest-only class X-W certificates.