Fitch Affirms 13 Classes of Morgan Stanley 2003-IQ4
Fitch Ratings has affirmed 13 classes of Morgan Stanley Capital I Trust's (MSCI) commercial mortgage pass-through certificates, series 2003-IQ4. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
Fitch modeled losses of 5% of the remaining pool; expected losses on the original pool balance total 1.7%, including losses already incurred. The pool has experienced $2.2 million (0.3% of the original pool balance) in realized losses to date. Fitch has designated 19 loans (31.2%) as Fitch Loans of Concern, which includes three specially serviced assets (9.7%) and the three largest loans in the pool (43.4%).
As of the January 2013 distribution date, the pool's aggregate principal balance has been reduced by 71.6% to $206.5 million from $727.8 million at issuance. Per the servicer reporting, four loans (9% of the pool) have defeased. Interest shortfalls are currently affecting classes K through O.
Following the January distribution date the largest specially-serviced loan, which was secured by a 260,000 square foot (sf) mixed-use complex in Cranford, NJ (4.8% of the pool) was sold. A loss of approximately $3.5 million is expected to be reflected in the next distribution report.
The largest contributor to modeled losses is secured by a 122-unit multifamily apartment building in Tampa, FL (1.8%). The servicer reported year-end (YE) 2011 debt service coverage ratio (DSCR) was 0.72 times (x) with 96% occupancy rate, compared to a DSCR of 1.44x with 98.4% occupancy rate at issuance. Low DSCR was the result of reduced revenue due to lower occupancy and significant increase in operating expenses. The borrower was renovating units before they were turned over to new tenants. The loan remains current and with the master servicer.
The next largest contributor to expected losses is the specially-serviced loan secured by a 101,286-sf office building in Wauwatosa, WI. The loan transferred to the special servicer on Aug. 21, 2009 due to servicer determination of imminent default. As of July 31, 2012, the building is 69.3% occupied. A property inspection on Aug. 6, 2012 revealed property to be in good condition. However, weak financials continue to result from occupancy issues. The borrower is currently seeking a modification of the loan terms, with negotiations ongoing.
The largest loan in the pool, the Federal Center Plaza (30.4%), is secured by two eight-story office buildings totaling 722,000-sf located on Fourth Street between C and D streets in the Washington, D.C. CBD. The General Service Administration (GSA) lease (50% of total space) was set to expire on Jan. 2, 2013. The borrower is in process of extending with GSA. According to the borrower, the process has been slow due to Congressional pressure.
The loan remains current and with the master servicer as of the January 2013 Remittance Report. Fitch expects no loss on the loan as the loan per square foot is low at $174 per foot. However, the refinance of the loan at its maturity of March 2013 may be delayed due to the ongoing lease negotiations.
The second largest loan, Encino Place (9%), is secured by the fee-simple interest in an 84,395-sf property located in Encino, CA. The first two stories (57,206 sf) of the three-story property consist of retail space, and the third story (27,189 sf) consists of office space. Recent poor performance (DSCR is 1.05x as of Sept. 30, 2012) is the result of reduced revenue due to lower occupancy, combined with increased operating expenses, when compared to underwriting. Occupancy has steadily declined since 2008 and rebound to 81% as of Sept. 30, 2012.
The third largest loan, 1801 North Military Trail, is secured by a 60,135-sf suburban office building in Boca Raton, FL. Poor performance (DSCR is 0.93x as of Sept. 30, 2012) is the result of reduced revenue due to decreased rents combined with increased R&M expenses. Revenue reduced when tenant Hodgson Russ vacated upon the lease expiration date of March 31, 2011. Competition could prove problematic as well, due to the availability of vacancies at other properties.
Fitch affirms the following classes as indicated:
--$109.5 million class A-2 at 'AAAsf', Outlook Stable;
--$18.2 million class B at 'AAAsf', Outlook Stable;
--$23.7 million class C at 'AAsf', Outlook Stable;
--$4.5 million class D at 'Asf', Outlook Stable;
--$7.3 million class E at 'A-sf', Outlook Stable;
--$7.3 million class F at 'BBBsf', Outlook Stable;
--$8.2 million class G at 'BBsf', Outlook Stable;
--$8.2 million class H at 'B-sf', Outlook Stable;
--$3.6 million class J at 'CCCsf', RE 100%;
--$1.8 million class K at 'CCCsf', RE 100%;
--$5.5 million class L at 'CCsf', RE 100%;
--$1.8 million class M at 'CCsf', RE 90%.
--$1.8 million class N at 'Csf', RE 0%.
The class A-1 certificates have paid in full. Fitch does not rate the class O certificates. Fitch previously withdrew the ratings on the interest-only class X-1 and X-2 certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in Fitch's Dec. 18, 2012 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', available at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 18, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
Alex Benz, +1-212-908-0854
Fitch Ratings, Inc.
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Mary MacNeill, +1-212-908-0785
Sandro Scenga, +1-212-908-0278 (New York)