Fitch Ratings has affirmed Wachovia Bank Commercial Mortgage Trust 2006-WHALE 7, and revised Rating Outlooks on two classes. A detailed list of rating actions follows at the end of this release.
SENSITIVITIES/KEY RATING DRIVERS
The transaction has benefited from significant paydown, most recently from the pay off of the Kyo Ya Hotel Portfolio. However, due to the increased concentration, the fact that all of the remaining loans are in special servicing and the high likelihood of interest shortfalls occurring on all of the remaining pooled classes, the ratings on classes A-2 and B were affirmed and outlooks revised to Stable from Positive. The revision of Outlooks reflects that while principal recovery is probable, due to the probability of interest shortfalls, future affirmations are likely. Any class with anticipated or previous interest shortfalls will be capped at 'A' or below. See 'Criteria for Rating Caps in Global Structured Finance', dated Aug. 2, 2012, for more details.
Under Fitch's methodology, all of the pooled and non-pooled loans were modeled to default in the base case stress scenario, defined as the 'B' stress, as all the loans in the pool are currently in special servicing. Expected losses to the pooled portion are 14.8% of the remaining pool, or 4.5% of the original pooled balance. In this scenario, the modeled average cash flow decline is 5% from either year end 2011 or 2012 servicer-reported financial data, or to the recent appraised values. To determine sustainable Fitch cash flow and stressed value, Fitch analyzed servicer-reported operating statements and rent rolls, updated property valuations, STR reports and recent lease and sales comparisons.
The transaction is collateralized by five loans, three of which are hotels (93.1%), one office (3.5%), and one retail (3.4%). All of the original final maturity dates including all extension options have passed; all of the remaining loans have been further extended through modifications and / or forbearance.
The three pooled contributors to losses (by unpaid principal balance) in the 'B' stress scenario are: Boca Resorts Hotel Pool (66%), Westin Aruba (10.6%), and Colonial Mall - Myrtle Beach (3.4%).
The largest remaining loan in the transaction is the Boca Hotel Portfolio. The portfolio consists of five hotels in Florida with a total of 2,318 rooms and a separate golf course. The properties, located in Boca Raton, Ft. Lauderdale and Naples, are the Boca Raton Resort & Club and Marina, Bahia Mar Beach Resort & Marina, Hyatt Regency Pier 66 & Marina, Naples Grand Resort, Edgewater Beach Hotel and Naples Grand Golf Club. The loan is currently performing according to terms of a forbearance / modification that include $45 million of paydown, a full cash trap and an extension through August 2013. Performance of the portfolio has improved since year end 2010; net operating income (NOI) as of trailing 12 month June 2012 has improved 23%. However, the NOI remains 60% below issuance expectations. As of June 2012, portfolio occupancy was 62% with a RevPAR of $131 compared to 60% and $127 in April 2011 and 67% and $153 at issuance, respectively. While the assets are considered high quality with land value and other income from areas such as marinas and golf courses, value calculated based on current cash flow indicates losses are possible.
The Westin Aruba is a 478 room, real estate owned (REO) hotel property located in Palm Beach, Aruba. The property has beachfront access, retail and meeting space, as well as a nightclub and a 12,000 square foot (sf) casino. The loan transferred to special servicing in November 2008 when the borrower failed to make operating advances to the hotel operator as specified in the loan agreement. The property has been REO since May 2009, when the special servicer foreclosed on the mezzanine lender, Petra Realty Advisors, who foreclosed on the original sponsor, Belfonti Capital Partners. Starwood initiated an 'all inclusive' option in 2009 which resulted in increased income. The casino operator ceased paying rent in April 2010, was evicted in October 2010 and the former casino operator's bank repossessed the casino equipment which resulted in a six week shut down. The casino reopened in December 2010 with new equipment and a new name, the Palm Beach Casino. Aruba Casino Management currently operates the casino. The property is currently being marketed for sale with purchase offers anticipated through Feb. 1, 2013. Fitch considers both principal and interest losses to be possible on the final disposition of this loan due to the amount of advances, expenses and fees outstanding.
The Colonial Mall - Myrtle Beach is collateralized by a 524,767 sf regional mall located in Myrtle Beach, SC. Anchors include J.C. Penney, two Belk stores, Bass Pro Shops, and Carmike Cinemas; in-line tenants are a typical mix of national retailers, with some local tenants. The anchors, with the exception of the cinema and the improvements to the Belk #2 store, are part of the collateral. The Belk #2 store pays ground rent. In 2004, a new super-regional mall opened 15 miles from the subject, resulting in declines in occupancy and sales. Issuance expectations assumed some level of performance stabilization; however, improved performance expectations have not been realized and occupancy has declined. At issuance, the total mall was 90.6% occupied, which was lower than historical rates in excess of 95%. Per the December 2009 rent roll, the total mall and in-line occupancy had declined to 84.2% and 66.5%, respectively. As of the December 2011 rent roll, total mall and in-line occupancy were 80.3% and 42.9%, respectively. J.C. Penney and both Belk store's (60% of the total anchor space) leases expire in 2014. As of June 2012, total mall occupancy remained at 80%.
Fitch affirms and revises Rating Outlooks as indicated:
--$573.5 million class A-2 at 'Asf'; Outlook revised to Stable from
--$98.6 million class B at 'BBBsf'; Outlook revised to Stable from Positive;
--$95 million class C at 'BBBsf'; Outlook Stable;
--$76.8 million class D at 'BBBsf'; Outlook Stable;
--$75.2 million class E at 'BBsf'; Outlook Stable;
--$70.4 million class F at 'BBsf'; Outlook Stable;
--$71.8 million class G at 'Bsf'; Outlook Stable.
--$64.9 million class H at 'CCCsf'; RE 100%;
--$21.9 million class J at 'CCCsf'; RE 50%;
--$25.4 million class K at 'CCsf'; RE 0%';
--$28.3 million class L at 'Dsf'; RE 0%';
--$18 million class BH-1 at 'CCCsf'; RE 100%;
--$28 million class BH-2 at 'CCCsf'; RE 50%;
--$56 million class BH-3 at 'CCsf'; RE 0%;
--$46 million class BH-4 at 'CCsf'; RE 0%;
--$3.3 million class WA at 'Csf'', RE 0%;
--$2.3 million class MB-1 at 'CCsf', RE 100%;
--$2.6 million class MB-2 at 'CCsf'; RE 100%;
--$2.6 million class MB-3 at 'CCsf'; RE 10%;
--$2.5 million class MB-4 at 'CCsf', RE 0%;
--$1.1 million class CM at 'Csf'; RE 0%'.
Class A-1, interest-only class X-1A and rake classes KH-1, KH-2, BP-1, UV and WB have paid in full and class X-1B was previously withdrawn. Class BP-2 is affirmed at 'Dsf/RE 0%' as realized losses were incurred.
An update to the U.S. CMBS Focus Report, 'Wachovia Bank Commercial Mortgage Trust, Series 2006-WHALE 7' will be available in the near future.
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.
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating Rate Transactions' (Nov. 29, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions
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