Fitch Affirms All Classes of GCCFC 2004-GG1
KEY RATING DRIVERS
Although credit enhancement is high, the affirmations reflect the high concentration with only seven loans remaining, three of which are in special servicing (36.6%), as well as the continued underperformance of the largest remaining loan (61.7%). Fitch modeled losses of 39.9% for the remaining pool; expected losses as a percentage of the original pool balance are at 4%, including losses already incurred to date (1.4%). Fitch has designated the three loans in special servicing and the largest loan (98.3%) as Fitch Loans of Concern.
As of the January 2016 distribution date, the pool's aggregate principal balance has been reduced by approximately 93.6% to $167.1 million from $2.63 billion at issuance. Interest shortfalls total $13.3 million and affect class P through H. No loans are currently defeased.
The largest contributor to modeled losses, 400 West Market Street, formerly known as the Aegon Center (61.7%), is secured by a 35-story, 633,650 square foot (sf) multi-tenant office tower in the Louisville, KY central business district. A loan modification was completed in November 2013 after the building lost the largest tenant, Aegon, and imminent default was expected due to the upcoming loan maturity of April 2014. The terms of the modification included an A/B Note split of $82 million for the A portion and $21.8 million for the B portion, a reduced interest rate of 4% with periodic step-ups and a loan extension of 60 months to April 2019. The sponsor rebranded the building in 2014 and is working diligently to secure new tenants in order to increase occupancy. Occupancy, as of third quarter 2015 (3Q15), was reported at 72%. The building is considered the premier location for corporate tenants and the subject's rental rates are 20% higher than the listed class A rate according to REIS. Only two tenant leases, Humana Insurance Company (6.28% of the net rentable area [NRA]) and Ernst & Young (4.4%), are scheduled to expire prior to the loan maturity. The loan continues to perform under the modified terms. Fitch's losses assumed a stressed cash flow based on the most recent reported net operating income (NOI) and a stressed cap rate.
The second-largest contributor to modeled losses, Severance Town Center (12.3%), is secured by a 644,501 sf retail center located in Cleveland Heights, OH, along Mayfield Road in close proximity to the Cleveland Clinic and John Carroll University. The subject was transferred to the special servicer January 2014 after an anchor tenant, Wal-Mart, relocated to a stand-alone site in the area. Wal-Mart continues to make lease payments; its lease expires in January 2019. A number of new leases were signed in an attempt to stabilize the property after the sponsor failed to pay off the loan by the scheduled maturity in April 2014. As of 3Q15, economic occupancy was 81% and physical occupancy was 62%. A note sale was unsuccessful during the summer of 2015. The foreclosure process is nearing completion and the special servicer is anticipating that the title will transfer to the trust in 1Q16.
The third-largest contributor to modeled losses is the real estate owned Skillman Abrams Shopping Center (4% of the pool), a 133,088 sf anchored retail center located in Dallas, TX. The loan transferred to the special servicer on Feb. 12, 2013 for imminent monetary default after the grocery anchor vacated the center to relocate to a new location in the market. The occupancy dropped to 27% during 4Q13 after another tenant vacated as result of the anchor leaving the property. The most recent reported occupancy was 18% as of December 2015. Foreclosure was completed in 2H13 and the special servicer is working to find a new anchor tenant before exploring disposition options.
RATING SENSITIVITIES
The rating on class E has a Stable Outlook due to high credit enhancement. Given the significant concentrations, upgrades to class E are unlikely. The revisions of Outlooks to Stable on classes F and G reflects the increase in credit enhancement due to paydown. Classes H through O may incur additional downgrades if higher than expected 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 and revises Rating Outlooks as indicated:
--$6.4 million class E at 'Asf'; Outlook Stable;
--$32.5 million class F at 'BBBsf'; Outlook Stable from Negative;
--$26 million class G at 'BBsf'; Outlook Stable from Negative;
--$39 million class H at 'CCCsf'; RE 80%;
--$6.5 million class J at 'CCsf'; RE 0%;
--$13 million class K at 'CCsf'; RE 0%;
--$13 million class L at 'Csf''; RE 0%;
--$9.8 million class M at 'Csf'; RE 0%;
--$9.8 million class N at'Csf'; RE 0%;
--$6.5 million class O at 'Csf'; RE 0%.
Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, B, C, D, OEA-B1, and OEA-B2 have repaid in full. Fitch does not rate $4.5 million class P. Classes XC and XP were previously withdrawn.
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