Fitch Ratings has downgraded, revised loss severity ratings and maintained a negative outlook on 19 classes from three U.S. commercial mortgage-backed securities (CMBS) transactions due to increased loss expectations for the Peter Cooper Village/Stuyvesant Town (PCV/ST) loan.
The affected transactions are WBCMT 2007-C30, ML-CFC 2007-5 and ML-CFC 2007-6.
The downgrades are due to the recent ruling by the New York State Court of Appeals and the continued underperformance of the PCV/ST loan. The adverse ruling against the loan sponsors, Tishman Speyer Properties, LP and Blackrock Realty, is likely to stop the conversion of rent-stabilized units to market-rate units and has made the owners liable for repayments of rent overcharges for unit conversions now deemed illegal.
Fitch has lowered its value estimate of the property to $1.8 billion based on second-quarter financials and a cap rate of 7%. In its analysis of the loan, Fitch no longer assumes income growth from the conversion of rent-stabilized units to market, based on the court's ruling that the owners cannot continue to convert stabilized units to market while receiving J-51 tax benefits. The amount of historical overcharges the sponsors are now liable to repay is uncertain at this time and are also not factored into Fitch's loss estimate due the uncertainty of the amount.
Cash low generated from the property remains significantly below what is needed to service the current outstanding debt, and the borrower continues to use debt-service reserves to cover operating shortfalls, Fitch notes. The balance of the debt-service reserve as of October was $24.4 million and is likely to be sufficient to only make the November and December debt-service payments.
Once the reserves have been depleted, Fitch believes a default of the loan and transfer to the special servicer is likely.
SOURCE: Fitch Ratings