DBRS Confirms All Classes of Morgan Stanley Capital I Trust, Series 2007-IQ16

DBRS Limited (DBRS) confirmed all classes of 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 at C (sf)
-- Class A-JFL at C (sf)
-- Class A-JA at C (sf)
-- Class B at C (sf)
-- Class C at C (sf)
-- Class D at C (sf)

DBRS maintained the Interest in Arrears designation for Classes C and D. None of the Classes have ratings that carry trends.

The rating actions reflect DBRS’s outlook for the remaining loans in the transaction, particularly for the largest loan remaining in the pool, Bangor Mall (Prospectus ID#7; 35.2% of the pool). As of the March 2019 remittance, the transaction had experienced a collateral reduction of 91.2% since issuance because of scheduled loan amortization, repayments and liquidations. Since DBRS’s last review in April 2018, seven loans were either liquidated or paid out from the Trust, representing a collateral reduction of 1.6%. Of the original 234 loans secured at issuance, there are only 13 loans remaining in the pool with an outstanding principal balance of $227.5 million.

According to the year-end 2017 financials, the loan reported a weighted-average debt service coverage ratio and debt yield of 0.70 times (x) and 4.9%, respectively. The pool is currently concentrated by loan size as the largest two loans, Bangor Mall and Milford Crossing (Prospectus ID#8; 30.9% of the pool), cumulatively represent 66.0% of the current pool. To date, 54 loans have taken a realized loss of $247.8 million, representing 9.8% of the issuance trust balance. All 13 loans remaining in the pool are in special servicing with nine loans (90.1% of the pool) currently real estate owned. Most 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. Losses for these classes are applied on a pro-rata basis based on the current balance of the classes.

Bangor Mall is secured by a regional mall in Bangor, Maine. A recent “Bangor Daily News” article dated February 27, 2019, reported that an auction held by the special servicer netted a high bid of just under $15.0 million, which did not meet the reserve price, is below the August 2018 appraised value of $17.3 million and is an 88.3% discount from the issuance value of $128.0 million. The loan has a current trust exposure of approximately $87.8 million. DBRS has requested an update on the pending sale of the mall. Following the loan's transfer to special servicing in August 2017, Sears announced that it would close, making it the second anchor to close at the property after the loss of Macy's in early 2017. That space was filled by Furniture Mattresses & More, which opened in the summer of 2018. JCPenney and Hannaford Supermarket were scheduled to expire in February 2019; however, both tenants have renewed their leases through February 2024, according to the latest rent roll. Per the September 2018 rent roll, the mall reported an occupancy rate of 86.3% at an average rent of $9.33 per square foot; however, with the vacancy of Sears and two other tenants, its implied occupancy rate is 66.0%. DBRS believes a loss severity in excess of 90.0% is likely at resolution given its decline in performance since issuance and the failure to receive the reserve price in the mall’s latest auction.

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

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#7 – Bangor Mall (35.2% of the pool)
-- Prospectus ID#8 – Milford Crossing (30.9% of the pool)
-- Prospectus ID#21 – Century XXI (11.1% of the pool)
-- Prospectus ID#37 – Kmart Portfolio (4.9% of the pool)
-- Prospectus ID#44 – Danbrook Realty Portfolio (4.9% of the pool)

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 most outstanding CMBS transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

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.

Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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

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