The downgrade reflects an increase in expected losses primarily due to updated property valuations on the specially serviced loans. Expected losses on the original pool balanced totaled 14.6%, while Fitch modeled losses of 14.8% for the remaining pool.
The New York-based ratings agency said the pool has experienced $87.2 million in losses to date. Fitch has designated 53 loans as “loans of concern.” This also accounts for 12 specially serviced assets.
Through the end of March, the pool’s aggregate principal balance has been reduced by 18.7% to $2.69 billion at issuance, Fitch said. One loan (0.2% of the pool) is currently defeased.
Fitch noted that the largest contributor to expected losses is the Beacon Seattle & DC Portfolio loan, which accounts for 10.2% of the pool. This loan, which was made up of 20 properties comprised of approximately 9.8 million square feet of space, transferred to special servicing in April 2010 and remained current as the borrower was negotiating a modification, which closed in December 2010.
Under the modification, nine properties were released. At the end of March’s payment, the loan has been paid down by $1.2 billion, or 43%.
Another large contributor to expected losses is a 145,536-square-foot home furnishing retail center that was transferred to special servicing in February 2009 due to monetary default. According to the special servicer, the former largest tenant—which accounted for 66% of the net rentable area—rejected its lease after filing for Chapter 11 bankruptcy protection. A foreclosure sale took place on Feb. 21 and the property has been an REO asset since March.
Due to increasing credit enhancement, the super senior classes of the certificates are expected to maintain their AAAsf rating, Fitch said, while a negative outlook was given to classes A-M.
“The assignment of a negative outlook to class A-M reflects the high percentage of Fitch Loans of Concern including 10 of the top 15 (30.6%),” the ratings agency said. “Future downgrades to the class A-M are possible if the performance these loans deteriorate further. Additional downgrades to the distressed classes (those rated below B) are expected as losses are realized.”