Fitch Ratings has downgraded one and affirmed 20 classes of Banc of America Commercial Mortgage Trust, series 2007-4 (BACM 2007-4). A detailed list of rating actions follows at the end of this release.
The downgrade to class A-M reflects an increase in Fitch modeled losses across the pool attributed to specially serviced loans as well as loans in the top 15 with continued underperformance. Fitch modeled losses of 13.3% of the remaining pool; modeled losses are 15.1% of the original pool, including losses realized to date. The Negative Outlook reflects the overall high leverage on loans in the top 15, the possibility for further performance deterioration on loans in the top 15, and the high percentage of Fitch Loans of Concern in the pool. Additionally, approximately 9% of the pool has a binary risk associated with single tenancy.
Fitch has designated 43 loans (35.2%) as Fitch Loans of Concern, which includes nine specially serviced loans (14%). The specially serviced loans include two real-estate owned assets (REO; 1.4%), three loans in foreclosure (0.8%), three loans greater than 90 days delinquent (1.1%); and the largest cross-collateralized and cross-defaulted loan that is performing under modified terms (10.7%).
As of the November 2012 distribution date, the pool's aggregate principal balance has been reduced by 11.8% to $1.969 billion from $2.232 billion at issuance, of which 8.4% was due to paydowns and 3.4% was due to realized losses. Cumulative interest shortfalls totaling $4.5 million are currently impacting classes H through N and class S.
The largest contributors to modeled losses are three cross collateralized and cross defaulted interest-only loans (10.7% of the pool) secured by a portfolio of five office properties totaling 1.2 million square feet located in the Sacramento metropolitan area (one located in Sacramento and four in Roseville). These loans were transferred to special servicing in May 2011 due to imminent default.
The loans were modified in July 2012. The modification granted a two-year maturity extension until May 2014 and a $27 million principal paydown on the C Portfolio portion; modified release provisions within the loan agreement; waived prepayment; and implemented a hard lockbox to trap all excess cash flow, amongst other terms.
Portfolio performance continues to decline. The year-end (YE) 2011 net operating income (NOI) declined 11.5% when compared to YE 2010 NOI, which has already declined 9.8% when compared to YE 2009 (total NOI decline between YE 2011 and YE 2009 was 20.1%). As of June 2012, the weighted average portfolio occupancy was 70%, a significant decline from the 92% reported at issuance. The largest property carries the portfolio with 90.3% occupancy, while the remaining four properties have occupancies ranging from 29.2% to 74.1%. According to REIS and as of third quarter 2012, the Downtown and Roseville submarkets of Sacramento reported market vacancies of 14.6% and 28.2%, respectively.
The next largest contributor to modeled losses is a partial interest-only loan (5.4%) secured by a 231,512 square foot (sf) office property located in La Jolla, CA. The property was not stabilized when underwritten at issuance. Underwritten base rents were based upon stabilized rents and not in-place rents. Although the June 2012 occupancy has improved to 93% when compared to June 2011 occupancy of 80%, the debt service coverage (DSCR), based upon a net operating income (NOI) basis, remained low at 0.35 times (x) for the trailing 12 month (TTM) period ended June 30, 2012. This represents an improvement from the 0.07x reported for the TTM ended June 30, 2011, but still a significant decline from the 1.29x reported at issuance. Approximately 59.9% of the total property square footage rolls before the end of 2017, the year the loan matures. The property is located in the La Jolla submarket of San Diego, which reported a market vacancy of 14.4% according to REIS as of third quarter 2012. Although the property is underperforming, the loan remains current. The borrower has continued to cover debt service shortfalls out of pocket.
The third largest contributor to modeled losses is an interest-only loan (3.3%) secured by a 256,670 sf office property located in Scottsdale, AZ. As of September 2012, property occupancy was 93.6%, representing an improvement from the 84% and 87% reported at YE 2011 and YE 2010, respectively. Multiple new leases were signed throughout 2011, which helped to booster occupancy. Although occupancy has improved, the YE 2011 DSCR, on a NOI basis, remained low at 0.89x, compared to 1.10x and 1.50x reported at YE 2010 and at issuance, respectively. Approximately 81.1% of the total property square footage rolls before the end of 2017, the year the loan matures. The property is located in the Scottsdale submarket of Phoenix, which reported a market vacancy of 27.8% according to REIS as of third quarter 2012.
Fitch has downgraded the following class:
--$223.1 million class A-M to 'Asf' from 'AAsf'; Outlook Negative.
Fitch has affirmed the following classes, as indicated:
--$204.6 million class A-1A at 'AAAsf'; Outlook Stable;
--$281.3 million class A-3 at 'AAAsf'; Outlook Stable;
--$71.5 million class A-SB at 'AAAsf'; Outlook Stable;
--$817.6 million class A-4 at 'AAAsf'; Outlook Stable;
--$178.5 million class A-J at 'CCCsf'; RE 65%;
--$22.3 million class B at 'CCCsf'; RE 0%;
--$19.5 million class C at 'CCCsf'; RE 0%;
--$22.3 million class D at 'CCCsf'; RE 0%;
--$22.3 million class E at 'CCsf'; RE 0%;
--$13.9 million class F at 'CCsf'; RE 0%;
--$16.7 million class G at 'CCsf'; RE 0%;
--$27.9 million class H at 'CCsf'; RE 0%;
--$22.3 million class J at 'Csf'; RE 0%;
--$19.5 million class K at 'Csf'; RE 0%;
--$5.2 million class L at 'Dsf'; RE 0%;
--$0 class M at 'Dsf'; RE 0%;
--$0 class N at 'Dsf'; RE 0%;
--$0 class O at 'Dsf'; RE 0%;
--$0 class P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%.
Classes A-1 and A-2 have paid in full. Fitch does not rate class S.
Fitch has previously withdrawn the rating on the interest-only class XW. (For additional information on the withdrawal of the rating on the interest-only classes, see 'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities', dated June 23, 2010.)
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Dec. 21, 2011).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions