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19 Jan 1999
MOODY'S ASSIGNS RATINGS TO FIRST UNION COMMERCIAL MORTGAGE TRUST FUNB SERIES 1999-C1 TRANSACTION
New York, January 19, 1999 -- Based on information available as of today, Moody's Investors Service assigned the following ratings to First Union Commercial Mortgage Trust Commercial Mortgage Pass-through Certificates, FUNB Series 1999-C1:
Issuer: First Union Commercial Mortgage Trust
Series: Commercial Mortgage Pass-Through Certificates FUNB Series 1999-C1
Class A-1: $ 224,414,205; Aaa; Credit Support, 28.50%
Class A-2: $ 608,949,000; Aaa; Credit Support, 28.50%
Class IO-1: $1,163,518,250; (notional amount); (P)Aaa; Credit Support, N/A
Class B: $ 58,273,000; Aa2, Credit Support: 23.50%
Class C: $ 61,186,000; A2, Credit Support: 18.25%
Class D: $ 67,014,000; Baa2, Credit Support: 12.50%
Class E: $ 17,482,000; Baa3, Credit Support: 11.00%
Class F: $ 52,445,000; Ba2, Credit Support: 6.50%
Class G: $ 37,877,000; B2. Credit Support: 3.25%
CREDIT RISK CONSIDERATIONS
Overall, Moody's said that the ratings are supported by the diversity of the security's portfolio -- both geographically (33 states and the District of Columbia) and by asset type. The ratings are also supported by the deal's low loan concentration. The largest loan in the transaction represents 3.9% of its pool balance and its 10 largest loans constitute 20% of the pool balance. The 25 largest loans constitute 36% of the pool balance.
As another positive, Moody's noted that the average property rating for the conduit loans is 2.4, which is better than average, on a scale of 1 to 5, with 1 being the best rating. In addition, the average credit rating for credit lease tenants is Baa1. Credit lease loans comprise 9.9% of the total loan pool. That most of the loans backing the deal have on-going reserves for taxes, insurance, and replacement reserves are viewed as further credit strengths.
Moody's is concerned, however, that the security's portfolio is highly leveraged, with a Moody's LTV of 91.1% for the conduit component. Further, the portfolio is subject to balloon risk, as only 10.66% of the loans are fully amortizing.
OVERVIEW OF THE MORTGAGE POOL
The aggregate outstanding principal balance of $1,163,518,250 is comprised of 238 mortgage loans, secured by first liens on 239 multifamily and commercial properties. The transaction includes fourteen mortgage loans, or 4.09%, which are cross-collateralized and cross-defaulted with one or more Mortgage Loans in the Mortgage Pool. The average loan size is approximately $4.9 million, with individual loan amounts ranging from $763 thousand to $46 million.
The loans are being sold to the trust by First Union National Bank.
There are two distinct collateral components to this transaction: a traditional conduit component and a credit tenant lease component.
Loan Type: The pool consists of conventional fixed rate mortgage loans with a weighted average interest rate of 7.05%. Each of the loans is secured by a first mortgage. Five mortgage loans, or 2.9% of the initial pool balance, are secured by leasehold estates and two mortgage loans, or 2.3% of the initial pool balance, are secured by both the borrower's leasehold estate and the underlying fee simple estate.
Property Type: The pool consists of seven major property types, approximately distributed as follows:
multifamily and manufactured housing - 42.0%; retail - 29.3%, of which 7.3% is secured by credit lease loans; hospitality - 12.4%, of which 2.1% is secured by credit lease loans; office - 9.9%; health care - 3.9%; industrial/warehouse/self-storage - 1.8%, of which .6% is secured by credit lease loans; and mixed use - .7%.
State Distribution: The pool's state distribution by principal balance is as follows: Florida - 12.7%; California - 10.1%; Georgia - 9.8%; Texas - 7.8%; New York - 7.5%; Maryland - 7.0%, Pennsylvania - 6.2% and North Carolina - 5.4%. The remaining mortgage properties are located throughout 25 other states plus the District of Columbia, with no other state representing more than 4.8% of the pool balance.
MSA Distribution: Moody's determines regional concentration utilizing Metropolitan Statistical Area (MSA) data. About half of the conduit pool balance is concentrated in 10 MSA's. The top five MSA concentrations are Atlanta, 10.4%; Washington, DC, 9.7%; New York City, 6.4%; Los Angeles, 5.6%; and Phoenix, 4.4%.
Mortgage loan documents pertaining to thirteen mortgage loans (5.2%) allow the borrower, under certain circumstances, with lender consent, to grant a subordinate mortgage in the future. One property, representing .11% of the pool is encumbered by secured subordinate debt. With respect to one mortgage loan, representing 3.9% of the pool, the members of the related borrower have pledged their membership interests to secure mezzanine debt, which debt is subject to a subordination and standstill agreement.
MOODY'S CREDIT RISK ANALYSIS
Cash Flow Haircuts: Moody's analysis of the real estate collateral for the conduit portion of the pool resulted in a weighted average downward adjustment to the underwritten cash flow of 3.0%. The downward adjustments by asset type are as follows: multifamily and manufactured housing, 3.0%; retail, 2.9%; office, 3.5%; hotel and healthcare, 2.8%; industrial and storage, 2.7%.
Debt Service Coverage Ratio (DSCR): For each mortgage loan in the conduit portion of the mortgage loan pool, DSCR was determined utilizing Moody's adjusted net cash flow assuming a stressed refinance constant of 9.25%. Moody's weighted average DSCR is 1.18x. The following table provides a summary of cumulative principal loan balance by Moody's stressed DSCR.
DSCR less than 1.00x: 4.0%
DSCR 1.00x - 1.05x: 15.4%
DSCR 1.05x - 1.10x: 19.6%
DSCR 1.10x - 1.20x: 25.9%
DSCR 1.20x - 1.30x: 12.0%
DSCR 1.30x - 1.40x: 9.7%
DSCR: 1.40x - 1.50x: 6.6%
DSCR: 1.50x - 1.60x: 5.9%
DSCR greater than 1.60x: .80%
Loan-to-Value (LTV) Ratio: Moody's weighted average LTV ratio for the conduit portion of the mortgage pool is 91.1% (based on Moody's capitalization rates for each property type). A summary of the conduit pool's cumulative principal loan balance by Moody's LTV is presented below.
LTV less than 70%: 4.9%
LTV 70% - 80%: 7.1%
LTV 80% - 85%: 11.4%
LTV 85% - 90%: 15.7%
LTV 90% - 95%: 23.5%
LTV 95% - 100%: 20.6%
LTV 100% - 110%: 16.6%
LTV 110% - 120%: .20%
Property Grade: Moody's grades properties on a scale of 1 to 5 (1 being the best), and takes these grades into consideration when assessing the sustainability of cash flow and likelihood of loan repayment. The grade incorporates several factors including a property's physical condition, location, tenancy, competitive position, and the overall market conditions. This pool's weighted average property grade is 2.4 for the conduit portion. Following is a summary of the pool's principal loan balance by Moody's property grade.
Grade 1.5 - 2.0: 14.6%
Grade 2.0 - 2.5: 23.1%
Grade 2.5 - 3.0: 36.3%
Grade 3.0 - 3.5: 23.0%
Grade 3.5 - 4.0: 3.0%
CREDIT LEASE LOANS
Thirty two of the Mortgage Loans with an aggregate balance of approximately $115 million, (representing 9.9% of the total pool balance) are secured by Mortgages on Mortgaged Properties that are subject to a lease to a tenant which possesses (or the parent of which or other affiliate of which guarantees the Credit Lease obligation possesses) the Moody's credit rating indicated below. The payment of interest and principal on Credit Lease Loans is dependent principally on the payment by each Tenant or guarantor of the Tenant's Credit Lease of monthly rental payments and other payments due under the terms of its Credit Lease. Included in the thirty two credit lease mortgage loans, Accor SA (20.7%), IHOP Corporation (1.1%) and Bunzl USA, Inc. (5.6%) were shadow rated for this analysis.
Rite Aid Corporation (22.1%): Baa1
Royal Ahold, NV (7.4%): A3
Lowe's Companies, Inc. (19.4%): A2
Walgreen Company (11.0%): Aa3
CVS Corporation (7.5%): A3
Eckerd Corporation (4.1%): A3
Sears, Roebuck and Co. (1.0%): A2
ONE CAPITAL CITY PLAZA LOAN, Atlanta, Georgia
($46 million, 3.9% of initial pool balance)
The note has a 10-year term, 30-year amortization and a 6.75% coupon. The loan is secured by a first mortgage on a 406,210 square foot office building located in the Buckhead section of Atlanta, Georgia. The property is 93% leased to 21 tenants, the largest of which is Blue Cross/Blue Shield of Georgia (BC/BS), which occupies 265,446 square feet, representing approximately 65% of total space in the building. BC/BS has been a tenant in the building since it was constructed in 1989 and recently extended its lease through June 30, 2004. Since taking occupancy in the building BC/BS has had an average growth rate of approximately 10,000 square feet per year. In July, 1998 Wellpoint Health Networks announced plans to purchase BC/BS. Wellpoint is rated Baa3 by Moody's.
The loan structure requires the Borrower to fund reserve accounts for tenant improvements and leasing commission expenses which may be incurred in the future. A reserve in the amount of $2,400,000 was funded at loan origination. Additionally, $75,000 is to be escrowed annually through January, 2003, and beginning on May 1, 2003, and continuing through July, 1, 2004, the Borrower is required to deposit into the reserve the greater of $123,000 per month, or all net cash flow generated by the property. To the extent that net cash flow is less than $123,000 per month, the members of the Borrower are obligated to fund the deficiency.
The loan documents permit mezzanine financing from certain permitted lenders not to exceed $14,000,000, to be secured only by a pledge of partnership interests and not by a mortgage of any kind. Additionally, at the closing of the loan subordinate financing was funded in the original amount of $2,250,000 evidenced by an unsecured promissory note.
The Borrower is comprised of two special purpose, bankruptcy remote limited liability companies controlled by entities affiliated with The Rubinstein Company. The loan per square foot is approximately $113. Moody's review of this asset resulted in a downward cash flow adjustment of 3.5%. Moody's stressed DSCR and LTV are 1.03x and 95%, respectively.
TURNBERRY TOWER LOAN, New York, NY
($25 million, 2.2% of initial pool balance)
The note has a 10 year term, 30 year amortization and a 6.875% coupon. The loan is secured by a first mortgage on a 31 story, 147 unit apartment building with two street level retail bays, located in New York City, on Manhattan's Upper East Side. The property is currently 100% leased. A health club and restaurant lease the retail space. The health club lease has been extended through December, 2009 and the restaurant is a new tenant which signed a ten year lease. The Borrower is a special purpose, bankruptcy remote limited partnership.
The loan per unit is $172,796. Moody's review of this asset resulted in a 3.6% adjustment to net cash flow, debt service coverage of .99x and a loan to value ratio of 104%.
CABIN JOHN LOAN, Potomac, Maryland
($24.5 million, 2.1% of initial pool balance)
The note has a 20 year term, 20 year amortization and a 6.68% coupon. The loan is secured by a first mortgage on a four building retail and office property with a total of 213,550 square feet. The property includes The Cabin John Shopping Center, comprised of one and two story retail/office buildings, constructed in 1970 and 1986, with a total of 151,266 square feet; and the Cabin John Mall, a two story enclosed retail/office mall that was constructed in 1978 and contains 80,284 square feet. The total property contains approximately 154,721 square feet of retail space and 58,829 square feet of office space.
Current occupancy is 96.8%. The property is leased to 75 different tenants. The largest tenant is Giant Food, which leases 33,373 square feet for twenty years, expiring in December, 2007. Giant reported sales of $752 per square foot. The second largest tenant is The Emmes Corporation, which occupies 22,258 square feet, which recently extended its lease through April, 2004. The third largest tenant is CVS, which leases 15,144 square and recently signed a 10 year lease. Other than these three tenants, which cumulatively represent 25.3% of total income, no other tenant represents more than 4.0% of income generated by the property.
A reserve account in the amount of $1,500,000 was established at loan closing to address potential environmental risks associated with the property. This amount represents 2.5 times the high end of the environmental company's estimate of remediation cost. The Borrower is a special purpose limited partnership. The principal of the Borrower, Carl M. Freeman has owned the property since developing it in 1970.
The loan per square foot is approximately $116. Moody's review of this asset resulted in a 1.7% adjustment to net cash flow, debt service coverage of 1.34x and a loan to value ratio of 69%.
PRINCE GEORGE'S METRO CENTER III LOAN, Hyattsville, Maryland
($24 million, 2.1% of initial pool balance)
The note has a 15 year term, 30 year amortization and a 7.00% coupon. The loan is secured by a first mortgage on a 378,814 square foot office building located in Hyattsville, Maryland, and a leasehold interest in the adjacent parking lot. Prince George's Metro Center III is part of a three building complex having a total of 975,000 square feet. The property is located immediately east of the Prince George's county regional mall and directly across the street from the Prince George's Metro station.
Prince George's Metro Center III is 88.5% leased by thirty-four tenants. The two primary tenants are both U.S. government agencies, Health & Human Services (HHS), which occupies 40% of the space, and General Services Administration (GSA), which occupies 10% of the space. HHS has been a tenant in the building since 1980 and its current lease expires in April, 2000. GSA has been a tenant since 1993 and its current lease expires in December 2002. Other tenants include Kaiser Health Plan, which leases 38,879 square feet through 2002 and Medlantic Health Corp., which leases 26,615 square feet through 2003.
Upfront and on-going reserves have been established to address potential tenant improvement costs and leasing commissions associated with the renewal or retenanting of all of the HHS space, which is approximately 146,931 square feet.
The Borrower is a special purpose, bankruptcy remote corporation. The principals of the borrower developed the property. The loan per square foot is approximately $65. Moody's review of this asset resulted in a 3.6% adjustment to net cash flow, debt service coverage of 1.09x and a loan to value ratio of 89%.
INLAND EMPIRE CENTER LOAN, Fontana, California
($21.4 million, 1.8% of initial pool balance)
The note has a 10 year term, 30 year amortization and a 7.02% coupon. The loan is secured by a first mortgage on an anchored retail shopping center in Fontana, California. The property has a gross leasable area of 305,091 square feet and a net rentable area of 283,591 square feet. The difference is attributable to 21,500 square feet that Vons vacated, in a partial lease buyout in 1995, when it downsized from a 70,500 square foot Expo store to its present store of 49,000 square feet. The 21,500 square feet vacated by Vons has been eliminated from economic consideration in the loan underwriting. Credit tenants, and/or tenants with long lease terms, including Toys R Us, Kids R Us, Pep Boys, Vons Supermarket and Edwards Theatres, occupy approximately 60.5% of net rentable area. Toys R Us, Kids R Us and Pep Boys have ground lease estates in the property. Current occupancy is approximately 89%. The loan per square foot, excluding the area ground leased by Toys R Us, Kids R Us and Pep Boys, is approximately $109. Moody's review of this asset resulted in a 2.5% adjustment to net cash flow, debt service coverage of 1.07x and a loan to value ratio of 96%.
A NOTE ON MOODY'S RATINGS
These ratings are principally based upon the quality of the underlying collateral and the transaction's legal structure. The ratings do not represent any assessment of (i) the likelihood or frequency of prepayment on the mortgage loans, (ii) the degree to which the frequency of prepayment might differ from that originally anticipated, (iii) whether or to what extent prepayments may be received, or (iv) in the case of the Class IO Certificates, the likelihood that the holders thereof might not fully recover their investment in the event of a rapid rate of prepayment (including both voluntary and involuntary prepayments) of the mortgage loans. The comments above are based on information received as of January 19, 1999.
Moody's Commercial Mortgage-Backed Securities Group will hold a teleconference to further discuss this transaction at 11:00 a.m. EST on January 20, 1999. The telephone number for U.S. callers is 1-800-857-6215 and for international callers 1-630-395-0482. A replay of this teleconference is available at 1-888-433-2203 for U.S. callers and 402-998-1306 for international callers. The replay will last for one month.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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