DBRS Confirms Ten, Downgrades 15 Classes of Morgan Stanley Capital I Trust, Series 2007-IQ16

DBRS has today confirmed Classes A-1 through A-1A, including notional classes X-1 and X-2 at AAA with Stable trends. Classes A-M, A-MA and A-MFL have been confirmed at AAA with Negative trends. All six shadow ratings have also been confirmed.

Additionally, DBRS downgraded 15 classes, Classes A-J through N, based on the following: 1) the most recent annual net cash flows have declined for approximately 36% of the pool, from the DBRS underwritten NCFs at issuance; and 2)approximately 11.4% of the current pool balance is being specially serviced. The downgrades represent anticipated losses associated with 24 delinquent and specially serviced loans. Due to the degree of uncertainty regarding the outcome of a number of loans in special servicing, the trend remains Negative for Classes N through H. Trends for the remaining classes are Stable.

The majority of the DBRS anticipated losses are associated with the Marriott Columbia loan (ProspectusID#9, 1.62% of the current pool balance). The property is a 300-key full-service hotel located in downtown Columbia, South Carolina and has a current loan per key of $137,666. The loan is more than 90 days delinquent and was transferred to the special servicer in May 2010 when the borrower issued a statement that it would be unable to continue covering cash flow deficits in order to remit loan payments. YE2009 data reported a DSCR of 0.18x and occupancy of 62%. The cash management waterfall has been modified to release cash for the borrower to cover delinquent payables and keep the hotel in operation. The asset is considered a high quality hotel with $10 million in renovations completed in 2005, and a number of high-end upgrades planned for the near future. The borrower has exhibited a great deal of dedication to the property and seems to be acting cooperatively with the special servicer. The DBRS liquidation scenario assumes significant losses on this loan.

The second largest contributor to the DBRS projected losses is the Crowne Plaza – Addison loan (ProspectusID#12, 1.45% of the current pool balance). The subject is a 429-key full-service hotel in Addison, Texas and has a current loan per key of $86,103. The loan was transferred to the special servicer in February 2010 due to imminent default and is paid through May 2010. As of May 31, 2010, the average occupancy at the property was 64% and the NOI DSCR was 0.96x. A fire broke out at the hotel in October 2010 and 120 rooms were removed from service due to water and fire damage, causing a further decline in occupancy. Repairs are underway, and all repair costs are expected to be covered by insurance. The workout strategy is foreclosure.

Eight loans that were previously on the DBRS HotList have been transferred to special servicing since the transaction’s last review. These loans represent 6.0% of the current pool balance.

The pool has 36 months of seasoning. Since issuance, six loans have paid out of the pool, representing 6.9% in collateral reduction. The current pool balance is $2,552,152,451. The transaction is heavily concentrated in loans secured by retail and hotel properties, which combined represent 43.6% of the current pool balance.

There are currently 61 loans, including two of the original top ten, on the servicer’s watchlist, representing 24.2% of the current pool balance. The weighted-average DSCR of the loans on the servicer’s watchlist is 0.94x.

The top five loans in the pool, representing 24.7% of the pool are exhibiting satisfactory performance with minimal cash flow change and a weighted-average DSCR of 1.12x.

As part of its in depth analysis, DBRS reviewed the six shadow-rated loans, the servicer’s watchlist, the delinquent loans, the specially serviced loans and the top ten loans. Combined, these loans represent 60.9% of the current pool balance.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.