DBRS Downgrades One, Confirms 24 Classes of Morgan Stanley Capital I Trust, Series 2007-IQ16

DBRS has today confirmed the following classes of Morgan Stanley Capital I Trust, Series 2007-IQ16:

Classes A-1, A-2, A-3, A-4, A-1A, A-M, A-MFL, A-MA, X-1 and X-2 at AAA (sf)
Classes A-J, A-JFL and A-JA at BBB (sf)
Class B at BBB (low) (sf)
Class C at BB (high) (sf)
Class D at BB (sf)
Class E at B (high) (sf)
Class F at B (sf)
Class G at B (low) (sf)
Classes H and J at CCC (sf)
Classes L, M and N at C (sf)

The trends on the above ratings are Stable, resulting in a trend change for Classes A-M, A-MFL and A-MA. DBRS does not currently project a loss scenario which would impact repayment to these classes.

DBRS has also downgraded Class K to C (sf) from CCC (sf).

The downgrade of Class K is a result of increased projected losses following the liquidation of seven loans, the transfer of five loans to special servicing, and the continued performance decline for some loans in special servicing since December 2010. Three loans, Marriott Columbia (Prospectus ID#9, 1.64% of the current pool balance), Ashtabula Mall (Prospectus ID#10, 1.58% of the current pool balance) and Crowne Plaza – Addison (Prospectus ID#12, 1.45% of the current pool balance) remain the primary loans of concern.

The majority of the anticipated losses are associated with the Marriott Columbia loan. 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 regarding its inability to remit loan payments due to severe cash flow deficits. The YE2010 DSCR was 0.18x, with an occupancy of 62%. This represents no change over YE2009 however; the financials did indicate an 84% cash flow decline since issuance. The asset is considered to be well-maintained, in good condition and benefits from its central location in downtown Columbia. A July 2010 appraisal suggests a property value of $20.5 million, down from an issuance appraised value of $67.6 million, indicating a significant potential loss with this loan is likely.

The Ashtabula Mall loan transferred to special servicing in September 2010 and is more than 90-days delinquent. The loan is secured by a 650,000 sf enclosed mall in Ohio, 60 miles northeast of Cleveland. The anchor tenants are Kmart, Sears and JC Penney. At issuance, there was a Dillard’s, represented 10% of the property’s NRA, but the tenant vacated shortly following securitization. Dillard’s continues to pay rent on it’s lease, which expires in February 2014. Tenant departures have left the property’s physical occupancy low at 43%, according to a January 2011 servicer’s site inspection. The YE2010 reported NCF represents a 25% improvement over YE2009, but a 47% decline since issuance. The servicer is pursuing foreclosure.

The third largest loan in special servicing is the Crowne Plaza – Addison loan. The subject is a 429-key full-service hotel in Addison, Texas and has a current loan-per-key of $85,410. The loan was transferred to the special servicing in February 2010 due to imminent default and is paid through May 2010. The property experiences a significant measure of competition from similar lodging properties in the immediate area. A fire broke out at the hotel in October 2010 and approximately 120 rooms were removed from service, placing further stress on revenue. According to the special servicer, cleanup and restoration have been completed, and a receiver was appointed in November 2010. A May 2011 appraisal indicates a property value of $19.1 million, down from an appraised value of $53.7 million at issuance.

The transaction has 45 months of seasoning and since issuance, 13 loans have been removed from the pool. Eleven of these loans contribute to a cumulative realized loss of approximately $18 million. This loss has reduced the unrated Class S by 62%. The transaction is heavily concentrated in loans secured by retail and hotel properties, which combined represent 48.2% of the current pool balance.

As of the August 2011 remittance, there are 19 loans, including two of the original top ten, in special servicing, representing 8.28% of the current pool balance. Sixty-six loans, including three of the original top ten, remain on the servicer’s watchlist, representing 26.2% of the current pool balance. The WADSCR for the top fifteen loans is 1.05x, and the WADSCR and WALTV for the entire pool is 1.23x and 80.5%, respectively. In comparison, the WADSCR and WALTV for the pool at issuance was 1.26x and 68.2%, respectively.

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

At issuance, DBRS shadow-rated six loans, representing 4.66% of the current pool balance, investment-grade. DBRS today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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

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