Fitch Downgrades 3 Classes of BACM 2006-3
OREANDA-NEWS. Fitch Ratings has downgraded three classes and affirmed 12 classes Banc of America Commercial Mortgage Inc. (BACM) commercial mortgage pass-through certificates series 2006-3. The downgrades reflect the transfer of two large loans to special servicing that did not pay in full at maturity as well as the increased likelihood of additional interest shortfalls.
KEY RATING DRIVERS
The pool is concentrated with 12 assets remaining in the pool, of which nine (75.1%) are in special servicing. All loans are past their original maturity dates. Additionally with only two performing loans remaining classes A-4 and A-1A remain vulnerable to interest shortfalls.
Fitch modeled losses of 56.7% of the remaining pool; expected losses on the original pool balance total 23.2%, including $216.9 million (11% of the original pool balance) in realized losses to date. Fitch has designated 12 loans (100%) as Fitch Loans of Concern, which includes nine specially serviced assets (75.1%).
As of the July 2016 distribution date, the pool's aggregate principal balance has been reduced by 78.5% to $422 million from $1.96 billion at issuance. No loans are defeased. Interest shortfalls are currently affecting classes A-J through P.
The largest contributor to expected losses is the specially-serviced Southern Hills Mall loan (24% of the pool), which is secured by 573,370 sf of a 796,162-sf regional mall located in Sioux City, IA, in Woodbury County. Built in 1980 and renovated in 2003, the mall is anchored by Sears (122,792 sf) and JCPenney (100,000 sf), neither of which are part of the collateral. The mall consists of 363,814 sf of inline space. The loan transferred to the special servicer in March 2016 due to imminent maturity default. As of March 2016 in-line sales were approximately $350 per square foot (psf). The sponsor, WP Glimcher is cooperating with the special servicer in the foreclosure process.
The next largest contributor to expected losses is the specially-serviced Minneapolis Airport Marriott loan (13.8%), which is secured by 472-room full-service hotel located 11 miles south of Minneapolis in Bloomington, MN. The trailing 12 month April 2016 occupancy, ADR and RevPAR were 67%, $114.46 and $77.67 respectively. RevPAR Index of 80.7 compares to 85.1 in 2015 and 88.7 in 2014. The special servicer is pursuing foreclosure.
Two performing loans remain in the pool. The largest of which is secured by the Rushmore Mall, a 737,725-sf regional mall located in Rapid City, SD, slightly north of the CBD, and approximately seven miles from the Ellsworth Airforce Base. Built in 1978 and renovated in 1993, the mall is anchored by Sears (124,215 sf) and JCPenney (89,909 sf). The mall has 421,948 sf of inline space. The loan transferred to special servicing in July 2011. A modification was completed in October 2014 splitting the loan into a $58 million A note and a $36 million B note. The maturity was also extended until February 2019. One smaller loan is performing matured and has been granted a 60 day forbearance to complete refinancing.
RATING SENSITIVITIES
The Rating Outlooks on classes A-4 and A-1A are Stable. Fitch deems full principal recovery on these classes likely but vulnerability to future interest shortfalls is a concern. The remaining classes are distressed and will see further downgrades as losses are realized.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch downgrades the following classes and assigned Recovery Estimates (REs) as indicated:
--$30.6 million class A-4 to 'Asf' from 'AAAsf'; Outlook Stable;
--$16.5 million class A-1A to 'Asf' from 'AAAsf'; Outlook Stable;
--$196.5 million class A-M to 'CCCsf' from 'BBsf'; RE 90%.
Fitch affirms the following classes:
--$152.3 million class A-J at 'Csf'; RE 0%;
--$26.2 million class B at 'Dsf'; RE 0%;
--$0 class C at 'Dsf'; RE 0%;
--$0 class D at 'Dsf'; RE 0%;
--$0 class E at 'Dsf'; RE 0%;
--$0 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%.
The class A-1, A-2 and A-3 certificates have paid in full. Fitch does not rate the class N, O and P certificates. Fitch previously withdrew the rating on the interest-only class XW certificates.
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