Fitch Downgrades 3 Classes of CFCRE 2011-C1; Affirms Senior Classes
OREANDA-NEWS. Fitch Ratings has downgraded three subordinate classes and affirmed seven classes of CFCRE Commercial Mortgage Trust 2011-C1 commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The downgrades reflect the continued decline in performance of the largest loan in the pool, the specially serviced Hudson Valley Mall, since Fitch's last rating action. The mall, which represents 16.5% of the pool balance, has a Macy's anchor store expected to close in April 2016. There are three non-specially serviced loans designated as Fitch Loans of Concern (13.9% of the pool), including one delinquent loan (1.8%). One loan is defeased (2.6%).
As of the February 2016 distribution date, the pool's aggregate principal balance has been reduced by 52.6% to $300.5 million from $634.5 million at issuance. The pool is becoming concentrated, with the top 10 loans representing 67.5% of the pool balance. Interest shortfalls are currently affecting class NR.
The largest loan is the specially serviced Hudson Valley Mall loan. The loan is secured by a 765,465 square foot (sf) regional mall, of which 639,465 sf is collateral, located in Kingston, NY, approximately 50 miles south of Albany, NY. The property, which was built in 1981, is currently anchored by Sears (15% net rentable area [NRA], expires 2019), Regal Cinemas (6% NRA, expires 2017) and Target (ground lease, expires 2026). Anchor tenant Macy's, on a lease to January 2017, is scheduled to close in April 2016. JC Penney, which represented 9% of the NRA, closed in April 2015 in advance of their October 2017 lease maturity. Other large tenants include Dick's Sporting Goods and Best Buy. Additional tenants are operating under modified or month-to-month leases, or have kick-out clauses. Tenants such as Buffalo Wild Wings, Express, Children's Place, Zales and Hollister have closed since issuance. Occupancy was 93% as of September 2015; however, this included the anchor spaces that will be dark through lease expiration. Estimated physical occupancy including the anchor spaces would fall below 70%. Significant losses were modeled based on Fitch's valuation, which takes into consideration the vacant anchor tenants and the expectation that occupancy may continue to decline.
The second largest loan is the Santa Fe Retail Portfolio (8.1%), which is secured by a 189,504-sf, mixed-use portfolio of seven properties located in Santa Fe, NM. The portfolio consists of art galleries, high-end retail, restaurants and office space. The occupancy has been stable since issuance, with reported second-quarter 2015 occupancy of 95%. The sponsor has an ownership interest in several tenants.
The third-largest loan in the pool is Westport Village Retail (6.7% of the pool), secured by a 172,574-sf retail center located in Louisville, KY. The center was completely redeveloped in 2008. This Fitch Loan of Concern is scheduled to mature in April 2016. Occupancy has declined to approximately 75%, as the largest tenant left at year-end (YE) 2014. The sponsor is InvenTrust, the former Inland American Real Estate Trust, Inc., which assumed the loan from the developer.
RATING SENSITIVITIES
The Negative Outlook remains on the three downgraded classes, since there is potential for further downgrades as Fitch receives updated information on the workout or disposition of the Hudson Valley Mall loan. Given the increasing concentrations in the pool and the size of the loan, further declines in value will likely result in additional downgrades. The Outlook on class C is revised to Stable as an upgrade is unlikely, since the pool is increasingly concentrated and credit enhancement is expected to be eroded with the disposition of the Hudson Valley Mall. Fitch will continue to monitor the performance of the remaining loans and take rating action as warranted.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has downgraded the following three classes:
--$27 million class E to 'BBsf' from 'BBB-sf', Outlook Negative;
--$7.9 million class F to 'Bsf' from 'BBsf', Outlook Negative;
--$7.9 million class G to 'CCCsf' from 'Bsf', RE 0%.
Fitch affirms the following classes and revises Rating Outlooks as indicated:
--$2.6 million class A-2 at 'AAAsf', Outlook Stable;
--$32.5 million class A-3 at 'AAAsf', Outlook Stable;
--$153.6 million class A-4 at 'AAAsf', Outlook Stable;
--Interest-only class X-A at 'AAAsf', Outlook Stable;
--$16.7 million class B at 'AAAsf', Outlook Stable;
--$19 million class C at 'Asf', Outlook to Stable from Positive;
--$14.3 million class D at 'BBB+sf', Outlook Stable.
Class A-1 has paid in full. Fitch does not rate the class NR or interest-only class X-B certificates.
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