NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed six classes of Lone Star Funds (LSTAR) commercial mortgage pass-through certificates series 2011-1. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The rating affirmations reflect the performance of the underlying collateral pool being in line with expectations at issuance. The attributes of this transaction are materially different from recent Fitch-rated conduit transactions. The collateral at issuance featured high initial loan to values (LTV's), low debt service coverage ratios (DSCR) and several loans in the transaction had a history of delinquency at issuance. The loans were seasoned at issuance and are scheduled to amortize more rapidly than newly originated loans.
As of the May 2014 distribution date, the pool's aggregate principal balance has been reduced by 58.4% to $149.4 million from $359.5 million at issuance. No loans are defeased. Interest shortfalls are currently affecting class G.
Fitch modeled losses of 28.8% of the remaining pool; expected losses on the original pool balance total 12%, which includes the minimal realized losses to date. Fitch has designated 37 loans (55.4%) as Fitch Loans of Concern, which includes nine specially serviced assets (16%).
The largest contributor to expected losses is a multifamily property consisting of 148 units located in Carmichael, CA (3.5% of the pool). The property was assumed in March 2013 and has undergone approximately $1.4 million in renovations. As of January 2014, occupancy has improved to 63% with average rent of $631 per unit. Rental rates at the property have remained below market in order to improve occupancy. Per REIS as of 1st quarter (1Q) 2014, the Sacramento, Carmichael multifamily submarket vacancy rate is 2.4% with average asking rent $830 per unit.
The next largest contributor to expected losses is a 30,551 square foot (sf) office property located in Tigard, OR (2%). The decline in performance is mainly attributed to loss of the top two tenants who vacated at their lease expirations in 2012. The property is currently 40% occupied. Per REIS as of 1Q 2014, the Beaverton/Sylvan submarket of Portland vacancy rate is 18.2% with average asking rent $20 sf.
The third largest contributor to expected losses is an 85,106 sf shopping center anchored by Harvest Fare, a free standing retail building, and a bank pad located in Fallston, MD (2.7%). The loan is specially serviced and currently real estate owned (REO). The property is 64% occupied as of December 2013. The commercial portion of the property was foreclosed on 02/08/2013 and the residential portion was foreclosed on 9/17/2013. The environmental reports contain no issues and a property manager has been retained. The property is currently listed for sale with Marcus Millichap.
RATING SENSITIVITY
Rating Outlooks on classes A and B through F are expected to remain Stable due to increasing credit enhancement and continued amortization and paydown. The rating outlook on class C is revised to positive reflecting the potential for a future upgrade with continued paydown, stable overall performance and loss expectations.
Fitch affirms the following classes and assigns or revises Rating Outlooks as indicated:
--$28.3 million class C at 'Asf'; Outlook to Positive from Stable.
Fitch affirms the following classes:
--$9.3 million class A at 'AAAsf'; Outlook Stable;
--$18 million class B at 'AAAsf'; Outlook Stable;
--$27.4 million class D at 'BBB-sf'; Outlook Stable;
--$7.6 million class E at 'BBsf'; Outlook Stable;
--$6.7 million class F at 'Bsf'; Outlook Stable.
Fitch does not rate the class G, residual class R or the interest only class X certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 18, 2012 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835268
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