DBRS Confirms Ratings on Morgan Stanley Capital I Trust, Series 2007-IQ16

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Morgan Stanley Capital I Trust, Series 2007-IQ16 (the Trust):

-- Class A-4 at AAA (sf)
-- Class A-1A at AAA (sf)
-- Class A-M at AA (sf)
-- Class A-MFL at AA (sf)
-- Class A-MA at AA (sf)
-- Class A-J at CCC (sf)
-- Class A-JFX at CCC (sf)
-- Class A-JA at CCC (sf)
-- Class B at C (sf)
-- Class C at C (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
-- Class X-1 at AAA (sf)
-- Class X-2 at AAA (sf)

Classes A-4, A-1A, A-M, A-MFL, A-MA, X-1 and X-2 have Stable trends. Trends are not assigned for classes rated CCC (sf) and below. Classes D, E, F and G also have the Interest in Arrears designation assigned. The rating on Class H has been Discontinued/Withdrawn, as it was downgraded to D (sf) over 30 business days ago.

The rating confirmations reflect the pool’s overall performance. Since issuance, the pool has experienced 29.3% of collateral reduction as a result of scheduled amortization, successful loan repayment and realized losses. There are 185 loans remaining in the pool out of the original 234 loans. The top 15 loans in the pool continue to exhibit stable performance. Excluding the two loans in special servicing, the top 15 loans report a YE2014 weighted-average (WA) debt service coverage ratio (DSCR) of 1.44 times (x) and a WA debt yield of 9.4%. The transaction also benefits from a small amount of defeasance collateral as seven loans, representing 2.1% of the current loan balance, are fully defeased.

As of the July 2015 remittance, there are 16 loans in special servicing and 52 loans on the watchlist, representing 11.5% and 24.8% of the current pool balance, respectively.

Since issuance, 30 loans have been liquidated from the trust, resulting in realized losses of $160.0 million. DBRS projects an additional $153.9 million of loss from 15 out of the 16 loans currently in special servicing. The largest additional losses are projected to come from two loans, Hilton Daytona Beach (Prospectus ID#4), representing 4.4% of the pool balance, and Hilton Antlers Colorado Springs (Prospectus ID#14), representing 1.7% of the pool balance, which are both highlighted below.

The Hilton Daytona Beach loan is secured by a 744-room full-service hotel in Daytona Beach, Florida. This loan was transferred to special servicing in October 2011 due to imminent monetary default and the lender took title of the property in August 2013, when the borrower and the lender mutually agreed to a stipulated foreclosure. According to the Smith Travel Research (STR) report, the April 2015 trailing 12 months (T-12) occupancy was 73.0%, the average daily rate (ADR) was $132.51 and the revenue per available room (RevPAR) was $96.70. The subject outperforms its competitive set in all three areas and has displayed an increase over the June 2014 T-12 figures of 70.1%, $128.87 and $90.32, respectively.

The subject’s competitive set includes hotels which are much smaller in size and are generally limited-service in nature, as the subject has more than three times the number of available rooms over its next biggest competitor. The November 2014 appraisal valued the property at $48.0 million, declining from the December 2013 value of $50.8 million and the issuance value of $150.3 million. The November 2014 valuation includes a Property Improvement Plan (PIP) requirement of $18.0 million, which is the estimate a potential purchaser would have to invest into the subject to maintain the Hilton flag, which expires in September 2017. Items in need of renovation include guest rooms, the ballroom, meeting rooms, the pool and spa area, and roofing upgrades. DBRS expects the Trust to experience significant losses with the resolution of this loan.

The Hilton Antlers Colorado Springs loan is secured by a 292-room full-service hotel in Colorado Springs, Colorado. This loan was transferred to special servicing in January 2013 due to imminent default and subsequently became REO as of December 2013. According to the January 2015 STR report, the T-12 occupancy was 71.9%, the ADR was $114.19 and the RevPAR was $82.78. The subject outperforms its competitive set in all three areas. When compared to the December 2013 STR report, the T-12 figures were 70.8%, $116.97 and $82.78, respectively. The December 2014 appraisal valued the property at $20.6 million, declining from the January 2014 value of $21.5 million and the issuance value of $55.2 million. The December 2014 valuation also includes a PIP estimation cost of $3.5 million. DBRS expects the Trust to experience significant losses with the resolution of this loan.

At issuance, DBRS shadow-rated four loans, representing 0.1% of the current pool balance, as investment grade. These loans include Ferrell-Duncan Medical Clinic, Canal Studio Corp., 283 6th Ave. Corporation and Seventh Housing Corp. DBRS has today confirmed that the performance of these loans remain consistent with investment grade loan characteristics.

DBRS continues to monitor this transaction, with additional information on the DBRS viewpoint for this transaction. The July 2015 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

All classes are privately placed pursuant to Rule 144a. The Class X-1 and Class X-2 balances are notional. DBRS ratings on interest-only certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the interest-only certificates’ position within the transaction payment waterfall when determining the appropriate rating.

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.