OREANDA-NEWS. Fitch Ratings has affirmed all classes of Morgan Stanley Capital I Trust (MSC) commercial mortgage pass-through certificates, series 2006-IQ12. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations are the result of substantial paydown and stable collateral performance. Fitch modeled losses of 8.1% of the remaining pool; expected losses on the original pool balance total 12.6%, including $269.8 million (9.9% of the original pool balance) in realized losses to date. Fitch has designated 27 loans (35.2%) as Fitch Loans of Concern, which includes five specially serviced assets (2.3%). Interest shortfalls are currently affecting classes A-J through S.

As of the July 2016 distribution date, the pool's aggregate principal balance has been reduced by 62.6% to $1.02 billion from $2.73 billion at issuance. Per the servicer reporting, 15 loans (15.1% of the pool) are defeased. 93.6% of the pool matures in 2016, of which 89% matures in the fourth quarter 2016. 20.5% of the pool is full term interest-only.

The largest loan and largest contributor to expected losses is the Gateway Center IV loan (5.6%), which is secured by a 331,246 square foot (sf) office building located in downtown Newark, NJ. The 15-story office tower is part of the Gateway Centre complex, and located across the street from the Prudential Centre, with close proximity to Newark Penn Station. The March 2016 rent roll reported occupancy at 80%, with McCarter & English as the largest tenant occupying 180,198-sf (53% of the net rentable area [NRA]). The YE 2015 net operating income (NOI) debt service coverage ratio (DSCR) dropped to 1.08x from 1.35x as of YE 2014 due to a drop in occupancy. The subject loan had previously transferred to special servicing in March 2014 for imminent default when the borrower requested assistance due to expected lease rollover and associated leasing costs. The loan had remained current and was returned to the master servicer in March 2015 with no changes to the loan.

Upcoming lease rollover risks include Prudential (23% NRA) with 75% of their current leased space expiring in December 2016. According to the servicer, Prudential has options to extend its lease through 2019; however, extension discussions have not yet begun. Prudential has several leases in other buildings that are part of the Gateway Centre complex and has just completed the construction of a new office tower in Newark which is reportedly expected to house staff from the Gateway Centre buildings. The loan matures in November 2016.

The second largest loan and contributor to expected losses is the Gateway Office Building loan (5.5%), which is secured by a 251,430 sf office building in Rockville, MD. Cash flow has declined since 2012 due to a rent reduction on the properties largest tenant, EMMES Corporation (EMMES), which had extended its lease from May 2013 to May 2033. EMMES had expanded its space to approximately 97,000 sf (38% NRA) from 89,000 SF (31% NRA), but base rent was reduced by approximately 18% with 2.75% annual rent steps. According to the March 2016 rent roll, the property was 88% occupied. The servicer-reported year-to-date (YTD) NOI DSCR increased to 1.35x as of March 2016 from 1.28x as of YE 2015. The loan matures in November 2016.

The third largest contributor to expected losses is a specially serviced asset. The subject is a 66,000 sf medical office building located in Landsdowne, VA. The property was transferred to the special servicer in February 2013 due to monetary default and has been real estate owned (REO) since January 2014. The default was the result of the largest tenant, Kaiser Foundation Health (19.3% of NRA) departing upon their lease expiration in January 2013. Occupancy remains low at just 46% as of September 2016, despite efforts to market the space. Fitch will continue to monitor the loan for leasing updates and any improvement in performance.

RATING SENSITIVITIES

The Rating Outlooks on classes A-1A and A-4 remain Stable due to sufficient credit enhancement and continued paydown. The Outlook on classes A-M and A-MFX were revised to Stable from Negative as credit enhancement remains high. Should portfolio cash flow deteriorate materially, downgrades are possible. Classes A-J and B 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 affirms the following classes as indicated:

--$282.5 million class A-1A at 'AAAsf'; Outlook Stable;

--$189.4 million class A-4 at 'AAAsf'; Outlook Stable;

--$173 million class A-M at 'AAAsf'; Outlook to Stable from Negative;

--$100 million class A-MFX at 'AAAsf'; Outlook to Stable from Negative;

--$242.3 million class A-J at 'CCsf'; RE 85%;

--$17.1 million class B at 'Csf'; RE 0%;

--$17 million 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%;

--$0 class N at 'Dsf'; RE 0%.

The class A-1, A-2, A-NM, A-3 and A-AB certificates have paid in full. Fitch does not rate the class O, P, Q and S certificates. Fitch previously withdrew the ratings on the class A-MFL certificate and the interest-only class X-1, X-2 and X-W certificates.