Approximately $1.1 Billion of Structured Securities Affected
New York, December 02, 2010 -- Moody's Investors Service (Moody's) confirmed the ratings of two classes,
affirmed seven classes and downgraded ten classes of COMM 2004-LNB3,
Commercial Mortgage Pass-Through Certificates as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 1, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jul 1, 2004 Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Jul 1, 2004 Assigned Aaa (sf)
Cl. A-5, Affirmed at Aaa (sf); previously on
Jul 1, 2004 Assigned Aaa (sf)
Cl. A-1A, Affirmed at Aaa (sf); previously on
Jul 1, 2004 Definitive Rating Assigned Aaa (sf)
Cl. X, Affirmed at Aaa (sf); previously on Jul 1,
2004 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Oct 29,
2008 Upgraded to Aaa (sf)
Cl. C, Confirmed at Aa2 (sf); previously on Oct 7,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. D, Confirmed at A2 (sf); previously on Oct 7,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Baa2 (sf); previously on Oct 7,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Ba2 (sf); previously on Oct 7,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to B2 (sf); previously on Oct 7,
2010 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to Caa2 (sf); previously on Oct 7,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to Ca (sf); previously on Oct 7,
2010 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to C (sf); previously on Oct 7,
2010 B1 (sf) Placed Under Review for Possible Downgrade
Cl. M, Downgraded to C (sf); previously on Oct 7,
2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Oct 7,
2010 B3 (sf) Placed Under Review for Possible Downgrade
Cl. N, Downgraded to C (sf); previously on Oct 7,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. O, Downgraded to C (sf); previously on Oct 7,
2010 Ca (sf) Placed Under Review for Possible Downgrade
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans and interest shortfalls. The confirmations and affirmations
are due to key 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.
Based on our current base expected loss, the credit enhancement
levels for the confirmed and affirmed classes are sufficient to maintain
their current ratings.
On October 7, 2010, Moody's placed 12 classes on review for
possible downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of 4.1%
of the current balance. At last review, Moody's cumulative
base expected loss was 1.9%. Moody's stressed scenario
loss is 7.7% of the current balance. Moody's provides
a current list of base and stress scenario losses for conduit and fusion
CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these expectations.
Performance that falls outside an acceptable range of the key parameters
may indicate that the collateral's credit quality is stronger or weaker
than Moody's had anticipated during the current review. Even so,
deviation from the expected range will not necessarily result in a rating
action. There may be mitigating or offsetting factors to an improvement
or decline in collateral performance, such as increased subordination
levels due to amortization and loan payoffs or a decline in subordination
due to realized losses.
Primary sources of assumption uncertainty are the current stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real estate
market as stressed with further performance declines expected in the industrial,
office, and retail sectors. Hotel performance has begun to
rebound, albeit off a very weak base. Multifamily has also
begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2010 and 2011;
we expect overall a sluggish recovery in most of the world's largest economies,
returning to trend growth rate with elevated fiscal deficits and persistent
The principal methodology used in these ratings was "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
In addition to methodologies and research available on moodys.com,
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.
Moody's review incorporated the use of the excel-based CMBS Conduit
Model v 2.50 which is used for both conduit and fusion transactions.
Conduit model results at the Aa2 level are driven by property type,
Moody's actual and stressed DSCR, and Moody's property quality grade
(which reflects the capitalization rate used by Moody's to estimate Moody's
value). Conduit model results at the B2 level are driven by a paydown
analysis based on the individual loan level Moody's LTV ratio.
Moody's Herfindahl score (Herf), a measure of loan level diversity,
is a primary determinant of pool level diversity and has a greater impact
on senior certificates. Other concentrations and correlations may
be considered in our analysis. Based on the model pooled credit
enhancement levels at Aa2 and B2, the remaining conduit classes
are either interpolated between these two data points or determined based
on a multiple or ratio of either of these two data points. For
fusion deals, the credit enhancement for loans with investment-grade
credit estimates is melded with the conduit model credit enhancement into
an overall model result. Fusion loan credit enhancement is based
on the underlying rating of the loan which corresponds to a range of credit
enhancement levels. Actual fusion credit enhancement levels are
selected based on loan level diversity, pool leverage and other
concentrations and correlations within the pool. Negative pooling,
or adding credit enhancement at the underlying rating level, is
incorporated for loans with similar credit estimates in the same transaction.
Moody's ratings are determined by a committee process that considers both
quantitative and qualitative factors. Therefore, the rating
outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's prior full review
is summarized in a press release dated April 9, 2009. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a third-party
due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
As of the November 10, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 17% to $1.1
billion from $1.3 billion at securitization. The
Certificates are collateralized by 87 mortgage loans ranging in size from
less than 1% to 12% of the pool, with the top ten
loans representing 49% of the pool. Fourteen loans,
representing 22% of the pool, have defeased and are collateralized
with U.S. Government securities, which is the same
as at last review. The pool includes three loans with investment
grade credit estimates, representing 29% off the pool.
Nineteen loans, representing 11% 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) 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.
Three loans have been liquidated from the pool since securitization,
resulting in an aggregate $17.1 million loss (55%
loss severity on average). Due to realized losses, class
P has been eliminated entirely and Class O has experienced an 8%
principal loss. Five loans, representing 6% of the
pool, are currently in special servicing. The largest specially
serviced loan is Beau Terre Office Building Loan ($35.2
million -- 3.2% of the pool), which is secured
by thirty-six buildings totaling 378,000 square feet (SF)
located in Bentonville, Arkansas. The loan was transferred
into special servicing in May 2010 and is currently in foreclosure.
The master servicer recognized a $14.6 million appraisal
reduction for this loan in September 2010.
The remaining four specially serviced loans are secured by multifamily
properties. The master servicer has recognized an aggregate $13.4
million appraisal reduction for the remaining specially serviced loans.
Moody's has estimated an aggregate $30.1 million loss (47%
expected loss on average) for all of the specially serviced loans.
Moody's has assumed a high default probability for seven poorly performing
loans representing 2.3% of the pool and has estimated an
aggregate $5.1 million loss (20% expected loss based
on a 50% probability of default) from these troubled loans.
Based on the most recent remittance statement, Classes H through
P have experienced cumulative interest shortfalls totaling $1.1
million. Interest shortfalls increased in November due to the servicer
recognizing appraisal entitlement reductions (ASERs) on several loans
based on recent appraisal reductions. Moody's anticipates that
the pool will continue to experience interest shortfalls because of the
high exposure to specially serviced loans. Interest shortfalls
are caused by special servicing fees, including workout and liquidation
fees, ASERs and extraordinary trust expenses.
Moody's was provided with full year 2009 operating results for 96%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV for the conduit component is 94% compared
to 98% at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 14.2% to the most recently
available net operating income (NOI). Moody's value reflects a
weighted average capitalization rate of 9.1%.
Moody's actual and stressed DSCRs for the performing conduit loans are
1.48X and 1.10X, respectively, compared to 1.30X
and 1.05X 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 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
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 21
compared to 23 at Moody's prior review.
The largest loan with a credit estimate is the Garden State Plaza Loan
($97.4 million -- 4.2%), which
represents a 25% pari-passu interest in a first mortgage
loan. The loan is secured by the borrower's interest in a 2.0
million SF super-regional mall located in Paramus, New Jersey.
The mall is anchored by Macy's, Nordstrom, J.C.
Penney, Neiman Marcus and Lord & Taylor. The in-line
space was 98% leased as of June 2010 compared to 96% at
last review. The loan is interest only for its entire 10-year
term. The loan sponsors are Westfield America Inc. and affiliates
of Prudential Assurance Co. Ltd. Moody's current credit
estimate and stressed DSCR are A1 and 1.47X, respectively,
compared to A1 and 1.44X at the prior review.
The second loan with a credit estimate is the 731 Lexington Avenue Loan
($106.2 million -- 9.6%), which
represents a 39.8% pari-passu interest in a first
mortgage loan. In addition, the property is encumbered by
an $86.0 million junior note held outside of the trust.
The loan is secured by a 694,000 SF office condominium located in
New York, New York. The collateral is part of a 1.4
million SF complex in midtown Manhattan on Lexington Avenue between 58th
and 59th Streets. Built in 2005, the condominium is 100%
leased to Bloomberg, L.P. through 2028. The
loan's anticipated repayment date (ARD) is March, 2014. Moody's
current credit estimate is A3, the same as at last review.
The third loan with a credit estimate is the Tysons Corner Center Loan
($57.9 million -- 5.2%), which
represents an 18.4% pari-passu interest in a first
mortgage loan. The loan is secured by the borrower's interest in
a 2.0 million SF regional mall located in McLean, Virginia.
The mall is anchored by Bloomingdale's, Macy's, Nordstrom
and Lord & Taylor. The property's financial performance has
improved since securitization due to additional rental income from a 265,000
SF renovation/expansion that was completely in 2007. The property
was 97% leased as of March 2010. The loan has amortized
7% since securitization. Moody's current credit estimate
and stressed DSCR are Aaa and 2.29X, respectively,
compared to Aaa and 2.18X at the prior review.
The top three performing conduit loans represent 13% of the pool
balance. The largest loan is the Centreville Square Loan ($57.2
million -- 5.2% of the pool), which is secured
by a 312,000 SF grocery store anchored retail center located in
Centreville, Virginia. The center was 89% occupied
as of December 2009, the same as at last review. Moody's
LTV and stressed DSCR are 89% and 1.06X, respectively,
compared to 91% and 1.04X at last review.
The second largest loan is DDR Portfolio Loan ($45.4 million
-- 4.1% of the pool), which represents a 35.1%
pari-passu interest in a first mortgage loan. The loan is
secured by 20 retail properties located throughout six states and totaling
3.3 million SF. The portfolio was 81% leased as of
June 2010 compared to 77% at last review. Performance has
declined significantly because of occupancy declines and increased operating
expenses. The loan was transferred to special servicing in May
2009 for imminent maturity default. The borrower was not able to
obtain refinancing on its June 1, 2009 maturity date. The
maturity date has been extended until June 2011 and the loan has been
transferred back to the master servicer. Moody's LTV and stressed
DSCR are 111% and 0.92X, respectively, compared
to 77% and 1.28X at last review.
The third largest loan is the 3 Beaver Valley Loan ($38.7
million -- 3.5% of the pool), which is secured
by a 263,000 SF office building located in suburban Wilmington,
Delaware. The property is 100% leased to American International
Insurance Company (senior unsecured rating of parent company, American
International Group, A3 -- stable outlook) through
January 2015. The lease expiration is coterminous with the loan
maturity and therefore the property will be exposed to significant rollover
risk at loan maturity. Moody's analysis reflects a significant
haircut to the reported NOI to reflect the rollover risk. The loan
has amortized 3% since last review. Moody's LTV and stressed
DSCR are 90% and 1.09X, respectively, compared
to 93% and 1.05X at last review.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's Analytics
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Confirms Two, Affirms Seven and Downgrades ten CMBS Classes of COMM 2004-LNB3
250 Greenwich Street
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