Fitch Ratings has upgraded three, downgraded one, and affirmed 15 classes of Morgan Stanley Capital I Trust, commercial mortgage pass-through certificates, series 2005-HQ6 (MSCI 2005-HQ6). A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrades reflect significant paydowns and continued stable collateral performance since the last rating action, while the downgrade to class J reflects the increased likelihood of loss to the class. Fitch modeled losses of 10.3% of the remaining pool; expected losses on the original pool balance total 7.6%, including $122.4 million (4.4% of original pool balance) of realized losses to date. Fitch has designated 48 loans (43.8% of current pool) as Fitch Loans of Concern, which includes four specially serviced assets (4.3%).
As of the January 2015 distribution date, the pool's aggregate principal balance has been reduced by 69% to $852.7 million from $2.75 billion at issuance. According to the servicing report, 13 loans (10.1%) are defeased. Cumulative interest shortfalls totaling $10.7 million are currently impacting classes H through S.
The largest contributor to Fitch-modeled losses, which remains the same since Fitch's last rating action, is the real-estate owned (REO) County Line Commerce Center asset (2.6% of pool). The asset is a 426,384 square foot (sf) office and industrial property located in Hatboro, PA. The loan was transferred to special servicing in March 2009 for imminent default and became REO in September 2010. As of the November 2014 rent roll, the asset was 58.5% occupied by five tenants, compared to 60.2% at year-end (YE) 2013, 65.1% at YE 2012, and 74% at issuance. The special servicer indicated it has recently accepted an 11-year lease extension with the largest tenant through 2026. Although the special servicer has begun the process of drafting the lease; it has encountered delays due to additional testing requirements brought about by the Environmental Protection Agency (EPA). The special servicer is in disagreement with the EPA and is working to resolve the issues. The special servicer hopes to have the lease extension completed over the next month and then proceed with a sale of the asset during the second quarter of 2015.
The next largest contributor to Fitch-modeled losses is the Skyline Industrial loan (2.6%). The loan is secured by two industrial/warehouse buildings totaling 930,100 sf located in Mesquite, TX; the 1201 Chase Road building (530,100 sf) and the 1371 South Town East Boulevard building (400,000 sf). Both buildings became vacant during 2011 when their initial tenants at issuance vacated at lease expiration. Since Fitch's last rating action, occupancy improved to 100% from 57% due to the execution of a short-term, one year lease in May 2014 with Georgia-Pacific Consumer Products LP (Georgia-Pacific) through May 2015 at the 1371 South Town East Boulevard for 43% of the portfolio total square footage. This space was previously occupied by Quakers Sales & Distribution, also on a short-term basis, until the tenant vacated during the fourth quarter 2013.
Occupancy is expected to decline back to 57% by the end of May 2015 as the master servicer indicated Georgia-Pacific will be vacating at lease expiration to move into a building that was constructed for them. The borrower continues to market the 1371 South Town East Boulevard property, but have no leasing prospects at this time. The other building at 1201 Chase Road is fully occupied by Hayes Retail Services through November 2016.
The third largest contributor to Fitch-modeled losses is the Delco Plaza of Hicksville loan (3.1%). The loan is secured by a 144,581 sf retail center located in Hicksville, NY. As of the December 2014 rent roll, the property was 83.5% occupied, down from 93.9% as of September 2013 at Fitch's last rating action. The decline in occupancy was mainly the result of four tenants vacating prior to their scheduled lease expiration.
RATING SENSITIVITIES
Rating Outlooks on classes A-4A, A-4B, A-1A, A-J, B, D, E, and F are Stable due to increasing credit enhancement, defeasance, and continued paydown. Fitch performed additional stresses when considering upgrades. The Positive Outlook on class C reflects the possibility for future upgrades due to an expected increase in credit enhancement as maturing loans pay off this year (94% of the pool matures prior to the end of 2015). Distressed classes (those rated below 'Bsf') may be subject to further downgrades as additional losses are realized.
Fitch has upgraded the following classes and assigned or revised
Rating Outlooks:
--$175.6 million class A-J to 'AAsf' from 'Asf'; Outlook Stable;
--$24.1 million class B to 'Asf' from 'BBBsf'; Outlook to Stable from Positive;
--$27.5 million class F to 'Bsf' from 'CCCsf'; Outlook Stable assigned.
Fitch has downgraded the following class:
--$31 million class J to 'CCsf' from 'CCCsf'; RE 0%.
Fitch has affirmed the following classes and revised Rating Outlooks:
--$160.9 million class A-4A at 'AAAsf'; Outlook Stable;
--$151.5 million class A-4B at 'AAAsf'; Outlook Stable;
--$111.9 million class A-1A at 'AAAsf'; Outlook Stable;
--$34.4 million class C at 'BBBsf'; Outlook to Positive from Stable;
--$27.5 million class D at 'BBsf'; Outlook Stable;
--$24.1 million class E at 'Bsf'; Outlook Stable;
--$27.5 million class G at 'CCCsf'; RE 100%;
--$34.4 million class H at 'CCCsf'; RE 0%;
--$22.1 million 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%;
--$0 class Q at 'Dsf'; RE 0%.
The class A-1, A-2A, A-2B, A-AB, and A-3 certificates have paid in full. Fitch does not rate the class S 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 the Dec. 10, 2014 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 10, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978864
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