DBRS Downgrades Three Classes of Morgan Stanley Capital I Trust, Series 2007-IQ16 and Confirms Remaining Classes

DBRS Limited (DBRS) downgraded three classes of the Commercial Mortgage Pass-Through Certificates, Series 2007-IQ16 issued by Morgan Stanley Capital I Trust, Series 2007-IQ16 (the Trust) as follows:

--Class A-J downgraded to C (sf) from CCC (sf)
--Class A-JFL downgraded to C (sf) from CCC (sf)
--Class A-JA downgraded to C (sf) from CCC (sf)

In addition, four classes were confirmed as follows:

--Class A-MA confirmed at AA (sf)
--Class B confirmed at C (sf)
--Class C confirmed at C (sf)
--Class D confirmed at C (sf)

The trend on Class A-MA is Stable. All other classes have ratings that do not carry a trend. In addition, DBRS has maintained the Interest in Arrears designation for Classes C and D.

The rating actions reflect DBRS’s outlook for the remaining loans in the transaction, particularly for the largest loan remaining in the pool in Prospectus ID#7 – Bangor Mall (29.6% of the pool). As of the March 2018 remittance, the pool has experienced a collateral reduction of approximately 89.6% since issuance, with 20 loans remaining out of the original 234 loans in the transaction. To date, 50 loans have been liquidated from the Trust, resulting in a total loss of $242.6 million. Based on the YE2016 financials, the pool is reporting a weighted-average (WA) debt service coverage ratio (DSCR) of 1.10 times (x), WA debt yield of 7.9% and exit debt yield of 7.0%. All defeasance collateral has repaid from the Trust.

Out of the 20 loans remaining in the pool, 19 loans (95.7% of the pool) are in special servicing as of the March 2018 remittance. The only loan still with the master servicer is Prospectus ID#37 – Kmart Portfolio Roll Up. The majority of the loans that are in special servicing were transferred for maturity default. DBRS anticipates that the cumulative losses that will be realized when the defaulted loans are liquidated will likely affect Classes A-J, A-JFL and A-JA as losses are applied on a pro-rata basis.

The pool is currently concentrated by loan size, with the two largest loans cumulatively representing 56.1% of the pool balance. These loans include the previously mentioned Bangor Mall loan and Prospectus ID#8 – Milford Crossing (26.4% of the pool).

The Bangor Mall loan is secured by a 535,000 square feet regional mall located in Bangor, Maine. The property is owned and operated by the loan sponsor, Simon Property Group. The loan was transferred to special servicing in August 2017 after the sponsor notified the servicer the loan would not be repaid at maturity. The property was originally anchored by JCPenney and Sears; however, Sears (16.1% of net rental area) has announced plans to vacate the subject in Q2 2018. With the Sears departure, DBRS estimates the property’s occupancy rate will fall to approximately 65.0%. According to the October 2017 appraisal, the subject’s as-is value was reported at $28.9 million, representing a 78.1% decline from over the issuance value of $128.0 million and well below the Trust’s current exposure of approximately $81.0 million. The loan is reporting a Q3 2017 DSCR of 1.41x, in comparison with the YE2016 DSCR of 1.65x and YE2015 DSCR of 1.75x; however, DBRS expects the cash flow to decline further in the near term as Sears departs and co-tenancy clauses for in-line tenants kick in. The special servicer reports the sponsor is not interested in modifying the loan and expects foreclosure to occur by the end of April 2018. In the analysis for this review, DBRS assumed a loss severity for the loan in excess of 80.0%.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID #7 – Bangor Mall
-- Prospectus ID #8 – Milford Crossing
-- Prospectus ID #21 – Century XXI
-- Prospectus ID #31 – Frost Bank – Corpus Christi
-- Prospectus ID #37 – Kmart Portfolio Roll Up

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS-rated transactions.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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