Fitch Upgrades GSMSC II 2005-GG4
KEY RATING DRIVERS
The upgrade reflects increased credit enhancement as a result of significant paydowns and better recoveries than previously modeled on loans disposed since Fitch's last rating action. Total paydowns were $2.1 billion with only $3.4 million of realized losses since the last rating action. Fitch modeled losses of 74.6% of the remaining pool; expected losses on the original pool balance total 8.5%, including $128.3 million (3.2% of original pool) in realized losses to date.
As of the November 2015 distribution date, the pool's aggregate principal balance has been reduced by 93% to $281.3 million from $4 billion at issuance. Of the original 186 loans, the pool is concentrated with 18 loans remaining. Fitch has designated 16 of these loans (95% of current pool) as Fitch Loans of Concern, which includes 15 specially serviced loans (88.1%) and one non-specially serviced loan (6.9%) that was modified into an A and a B note. Cumulative interest shortfalls totaling $43 million are currently affecting classes D through P.
The two largest contributors to Fitch-modeled losses have remained the same as the last rating action.
The largest contributor to Fitch-modeled losses is the One HSBC Center loan (26.1% of pool). The loan is secured by an 850,476 square foot (sf) office property located in Buffalo, NY. The loan was transferred to special servicing in November 2013 for imminent default. Both the largest tenant, HSBC (initially occupying 77% of total property sf), and the second largest tenant, Phillips Lytle (10%), vacated the property. The loan had matured in February 2015.
As of the June 2015 rent roll, occupancy has remained at 5.8% with no leasing traction or momentum. Foreclosure was filed in December 2014. The lender was the winning bidder at the October 2015 foreclosure sale of the tower portion of the property. According to the special servicer, the foreclosure auction for the garage portion of the property is expected to take place in early 2016. The master servicer deemed this loan to be non-recoverable in January 2015. Property cash flow has been negative since 2014. Fitch modeled a full loss upon liquidation.
The next largest contributor to Fitch-modeled losses is the Temple Mall asset (11.7%). The asset is a 559,309 sf retail property located in Temple, TX. The loan was transferred to special servicing in September 2008 due to imminent default. The asset became real-estate owned in September 2011.
As of the June 2015 rent roll, occupancy was 79%. Mall anchors include Macy's, Dillards JCPenney, and Premier Cinema. Macy's owns its pad, while the other mall anchors have leases expiring in October 2017, July 2020, and July 2034, respectively. The IMAX expansion of the theatre, which in part was funded by a city assistance package, has been completed. Year-end (YE) 2014 sales have remained stagnant compared to 2013, but have increased by double digits from 2012 figures. Year-to-date September 2015 sales for Premier Cinema have increased by nearly 19% due to the addition of the IMAX. The special servicer indicated there has been positive leasing momentum and it is working to finalize new leasing with a few larger size tenants. The special servicer anticipates asset disposition next year.
The largest non-specially serviced loan (6.9%), the El Dorado Shopping Center - McKinney, is a Fitch Loan of Concern. The loan, which is secured by a 125,590 sf retail property located in McKinney, TX, was modified into an A and a B note in October 2013. Property performance declined significantly due to the lack of progress of the ongoing highway construction, which has closed exits to the property, thereby impacting overall visibility and reducing and diverting away traffic to the center. In addition, there has been three million square feet of newly built competitive space coming onto the market.
As of the September 2015 rent roll, the property was 88.4% occupied. The largest in-place tenants include Bed Bath & Beyond, Trader Joe's, Home Consignment Center, and Pier 1 Imports. Many of the larger tenants at issuance, including Old Navy, Famous Footwear, and Kirkland's, have relocated to other nearby competitive retail properties. There is possibility that another in-place anchor may relocate as well. In-place tenants have been requesting rent abatements due to declining sales. New leases and renewals are being signed with high rent concessions in order to attract and retain tenancy. The loan matures on May 1, 2016; however, the borrower has two additional one-year extension options, subject to advanced notice, an extension fee, and a principal curtailment.
The other two non-specially serviced loans are each secured by single-tenanted properties, including an office property in Wilmington, NC occupied by Verizon Wireless and a retail property in McKinney, TX occupied by Belk. The single tenant's lease expirations (December 2026 and August 2024, respectively) extend beyond the loan's maturities (March 2017 and April 2016, respectively).
RATING SENSITIVITIES
The Rating Outlook on class C is Stable due to increasing credit enhancement and expected continued paydown. Further upgrades were not considered due to pool concentration and adverse selection. Future upgrades to the distressed classes (those rated below 'Bsf') are possible as specially serviced loans are resolved and disposed. Conversely, classes may also be downgraded if additional losses are realized or if losses exceed Fitch's expectations.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following classes as indicated:
--$9.5 million class C to 'BBsf' from 'Bsf'; Outlook Stable.
In addition, Fitch has affirmed the following classes as indicated:
--$75 million class D at 'CCsf'; RE 0%;
--$40 million class E at 'Csf'; RE 0%;
--$55 million class F at 'Csf'; RE 0%;
--$45 million class G at 'Csf'; RE 0%;
--$40 million class H at 'Csf'; RE 0%;
--$16.8 million 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%.
Classes A-1, A-1P, A-DP, A-2, A-3, A-ABA, A-ABB, A-4, A-4A, A-4B, A-1A, A-J, and B have paid in full. Class P is not rated by Fitch. The ratings on the interest-only classes X-P and X-C were previously withdrawn.
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