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Rating Action:

Moody's Affirms Four, Confirms One and Downgrades Seven CMBS Classes of JPMCC 2002-C3

09 Jun 2010

Approximately $99.7 Million of Structured Securities Affected

New York, June 09, 2010 -- Moody's Investors Service (Moody's) affirmed the ratings of four classes, confirmed one class and downgraded seven classes of J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2002-C3. The downgrades are due to higher expected losses resulting from realized and anticipated losses from specially serviced and highly leveraged watchlisted loans as well as interest shortfalls.

The confirmation and affirmations are due to key rating parameters, including Moody's loan to value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the Herfindahl Index (Herf), remaining within acceptable ranges.

On April 9, 2010 Moody's placed eight classes of this transaction on review for possible downgrade. This action concludes our review of this transaction. The rating action is the result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions.

As of the May 12, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 26% to $548.9 million from $745.3 million at securitization. The Certificates are collateralized by 77 mortgage loans ranging in size from less than 1% to 7% of the pool, with the top ten loans representing 30% of the pool. Thirteen loans, representing 34% of the pool, have defeased and are collateralized by U.S. Government securities.

Sixteen loans, representing 18% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC; formerly Commercial Mortgage Securities Association) monthly reporting package. As part of our ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance.

Four loans have been liquidated from the pool since securitization, resulting in an aggregate $40.4 million loss (66% loss severity on average). Classes K, L, M, N and the nonrated class have been 100% eliminated due to losses and Class J has experienced a 36% principal loss. Currently, three loans, representing 6% of the pool, are in special servicing. The largest specially serviced loan is the 78 Corporate Center Loan ($17.5 million -- 3.1% of the pool), which is secured by a 185,850 square foot office building located in Lebanon, New Jersey. The loan was transferred to special servicing in January 2009 and is currently 90+ days delinquent. The servicer has recognized a $12.3 million appraisal reduction for this loan.

The remaining two specially serviced loans are secured by hospitality and retail properties. Moody's estimates an aggregate $16.8 million loss for all specially serviced loans (52% expected loss on average).

In addition to recognizing losses from specially serviced loans, Moody's has assumed a high default probability on eight loans representing 5% of the pool and has estimated an aggregate loss of $6.8 million (overall 27% expected loss based on a overall 47% probability of default) from these troubled loans. Moody's rating action recognizes potential uncertainty around the timing and magnitude of loss from these troubled loans.

As of the most recent statement date, Classes L through D have experienced cumulative interest shortfalls totaling $1.7 million. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions (ASERs) and extraordinary trust expenses. Cumulative interest shortfalls have increased significantly since March 2010. The increase is primarily due to on-going litigation expenses associated with the 318 West Adams Loan.

The 318 West Adams Loan was sold in September 2005 for a significant loss (loan balance at sale - $10.7 million; 79% loss severity). The special servicer, ING Clarion Capital Loan Servicing, LLC, has been in litigation against multiple defendants, including the loan guarantor and the loan seller, for fraud and breach of reps & warrantees. The litigation has been on-going for several years and is expected to go to trial in September 2010. Legal expenses, which typically have ranged from $150,000 to $350,000 per month, are passed through as extraordinary trust expenses and are expected to continue and perhaps increase as the case approaches the trial date.

Moody's expects that interest shortfalls will continue to increase and negatively impact Classes J, H and G throughout the remaining life of the deal. While Moody's also expects Classes F, E and D to continue to experience interest shortfalls for an undetermined amount of time, we believe that these shortfalls will be reimbursed.

Moody's was provided with full year 2008 or partial 2009 operating results for 99% of the pool. Moody's weighted average LTV ratio, excluding the specially serviced and troubled loans, is 78% compared to 86% at Moody's prior review.

Moody's actual and stressed DSCR are 1.45X and 1.41X, respectively, compared to 1.27X and 1.23X at last review. Moody's actual DSCR is based on Moody's net cash flow (NCF) and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stressed rate applied to the loan balance.

Moody's uses a variation of the Herf to measure diversity of loan size, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple-notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 33 compared to 40 at last review.

The three largest performing loans represent 12% of the outstanding pool balance. The largest loan is the Anderson Mall Loan ($27.1 million -- 4.9% of the pool), which is secured by a 393,236 square foot (SF) mall located in Anderson, South Carolina. As of March 2010 the property was 90% leased, essentially the same as at year end 2008. Tenants include Belk (38% of the net rentable area (NRA); lease expiration July 2019), Dillard's (32% of the NRA; lease expiration July 2019) and JC Penny (32% of the NRA; lease expiration February 2012). The property is performing below Moody's original projections due to increased operating expenses. This loan is currently on the master servicer's watchlist. Moody's LTV and stressed DSCR are 105% and 1.03X, respectively, compared to 94% and 1.15X at last review.

The second largest performing loan is the Crossways Shopping Center Loan ($21.1 million -- 3.8% of the pool), which is secured by a 378,645 SF retail center located in Chesapeake, Virginia. As of December 2008 the property was 96% leased, essentially the same as at securitization. Tenants include Value City Furniture (15% of the NRA; lease expiration April 2016), DSW Shoes (10% of the NRA; lease expiration July 2011) and Ross Dress for Less (8% of the NRA; lease expiration January 2013). The property is performing above Moody's original projections due to increased revenue. Moody's LTV and stressed DSCR are 117% and 1.02X, respectively, compared to 154% and 0.81X at last review.

The third largest performing loan is the 276 Fifth Avenue Loan ($19.7 million -- 3.6% of the pool), which is secured by 166,017 SF class B office building located in the Penn Station submarket of New York City. As of April 2010 the property was 80% leased compared to 82% at year end 2008. The property has performed above Moody's projections at securitization. Moody's LTV and stressed DSCR are 65% and 1.57X, respectively, compared to 75% and 1.38X at last review.

Moody's rating action is as follows:

-Class A-1, $25,846,845, affirmed at Aaa; previously assigned to Aaa on 12/23/2002

-Class X-1, Notional, affirmed at Aaa; previously assigned to Aaa on 12/23/2002

-Class A-2, $395,432,000, affirmed at Aaa; previously assigned to Aaa on 12/23/2002

-Class B, $27,950,000, affirmed at Aaa; previously upgraded to Aaa on 12/20/2005

-Class C, $9,316,000, confirmed at Aaa; previously placed on review for possible downgrade on 4/9/2010

-Class D, $24,224,000, downgraded to Baa2 from Aa1; previously placed on review for possible downgrade on 4/9/2010

-Class E, $9,316,000, downgraded to Ba2 from Aa3; previously placed on review for possible downgrade on 4/9/2010

-Class F, $22,360,000, downgraded to B3 from Baa1; previously placed on review for possible downgrade on 4/9/2010

-Class G, $11,180,000, downgraded to Caa3 from Baa3; previously placed on review for possible downgrade on 4/9/2010

-Class H, $14,907,000, downgraded to C from Ba3; previously placed on review for possible downgrade on 4/9/2010

-Class J, $8,379,807, downgraded to C from Caa3; previously placed on review for possible downgrade on 4/9/2010

-Class K, $0, downgraded to C from Ca; previously placed on review for possible downgrade on 4/9/2010

Moody's monitors transactions on both a monthly basis through two sets of quantitative tools -- MOST® (Moody's Surveillance Trends) and CMM on Trepp -- and on a periodic basis through a full review. Moody's prior full review is summarized in a press release dated May 7, 2008.

The principal methodology used in rating and monitoring this transaction is "CMBS: Moody's Approach to Rating U.S. Conduit Transactions" dated September 15, 2000, and is available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael M. Gerdes
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms Four, Confirms One and Downgrades Seven CMBS Classes of JPMCC 2002-C3
No Related Data.
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