Approximately $512.9 Million of Structured Securities Affected
New York, September 22, 2010 -- Moody's Investors Service (Moody's) downgraded 11 classes and affirmed
one class of J.P. Morgan Chase Commercial Mortgage Securities
Corp. Commercial Mortgage Pass-Through Certificates,
Cl. A-1, Affirmed at Aaa (sf); previously on
Dec 7, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Downgraded to Aa2 (sf); previously on
Sep 16, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to A1 (sf); previously on Sep 16,
2010 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to A2 (sf); previously on Sep 16,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to A3 (sf); previously on Sep 16,
2010 Aa3 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Baa1 (sf); previously on Sep 16,
2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Baa3 (sf); previously on Sep 16,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Ba1 (sf); previously on Sep 16,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to Ba2 (sf); previously on Sep 16,
2010 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to B1 (sf); previously on Sep 16,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to Ca (sf); previously on Sep 16,
2010 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Sep 16,
2010 B3 (sf) Placed Under Review for Possible Downgrade
The downgrades were due to the deterioration in the performance of the
assets in the trust, the significant concentration of loans secured
by hotel properties (42% of pooled trust balance), and refinancing
risk associated with loans approaching maturity in an adverse environment.
Approximately 100% of loans mature within the next 18 months.
Moody's also affirmed one pooled class. The affirmation is
due to key parameters, including Moody's loan to value (LTV)
ratio and Moody's stressed debt service coverage ratio (DSCR),
remaining within acceptable ranges. Moody's placed these
classes on review for possible downgrade on September 16, 2010.
This action concludes Moody's review.
Further downward pressure on the ratings could occur if the collateral
for the Doubletree Hotel loan and the Roosevelt hotel loan fail to demonstrate
Revenue per Available Room (RevPAR) and cash flow improvement in line
with Moody's expectation. Hotels located in New York City have
begun to show improved performance since the beginning of 2010.
The New York hotel market has seen a 15.3% improvement in
RevPAR year to date through July 2010, as compared to the same period
in 2009, based on the Smith Travel Research 'US Hotel Industry Performance
for the month of July 2010' report. Moody's anticipated RevPAR
to increase in line with the New York City hotel market. In addition,
office cash flow performance below Moody's expectation on the RREEF
Silicon Office Portfolio loan and Marina Village loan will also have an
impact on the ratings. In the case of the RREEF loan, a material
lease rollover occurs in 2011, while occupancy levels have already
declined due to lease rollover on the Marina Village property.
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 unemployment levels.
The principal methodology used in rating J.P. Morgan Chase
Commercial Mortgage Securities Corp. Commercial Mortgage Pass-Through
Certificates, Series 2006-FL2 was Moody's "CMBS: Moody's
Approach to Rating Large Loan/Single Borrower Transactions" rating methodology
published in July 2000. Other methodologies and factors that may
have been considered in the process of rating this issuer can also be
found on Moody's website.
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
Large Loan Model v 8.0 which is used for both large loan and single
borrower transactions. The large loan model derives credit enhancement
levels based on an aggregation of adjusted loan level proceeds derived
from Moody's loan level LTV ratios. Major adjustments to
determining proceeds include leverage, loan structure, property
type, and sponsorship. These aggregated proceeds are then
further adjusted for any pooling benefits associated with loan level diversity,
other concentrations and correlations. The model also incorporates
a supplementary tool to allow for the testing of the credit support at
various rating levels. The scenario or "blow-up"
analysis tests the credit support for a rating assuming that all loans
in the pool default with an average loss severity that is commensurate
with the rating level being tested.
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 March 19, 2009. The
previous review was part of Moody's first quarter 2009 ratings sweep
and incorporated assumptions for capitalization rates and stressed cash
flows that were outlined in "Rating Methodology Update: US
CMBS Conduit and Fusion Review Prompted by Declining Property Values and
Rising Delinquencies" dated February 5, 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 received and took into account one or
more third party due diligence reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the rating.
As of the September 16, 2010 distribution date, the transaction's
certificate balance decreased by approximately 55% to $680.9
million from $1.5 billion at securitization due to the payoff
of eight loans and principal pay downs associated with five loans.
The Certificates are collateralized by eight floating-rate loans
ranging in size from 3% to 21% of the pooled trust mortgage
balance. The largest three loans account for 55% of the
pooled balance. The pool composition includes office properties
(58% of the pooled balance) and hotel properties (42%).
The deal has a modified pro-rata structure. Interest on
the pooled trust certificates are distributed first to Classes A-1,
X-1 and X-2, pro rata, and then to Classes A-2,
B, C, D, E, F, G, H, J,
K, and L, sequentially. Prior to a monetary or material
non-monetary event of default, scheduled and unscheduled
principal payments are allocated to the Pooled Classes and junior participation
interests on a pro rata basis. Initially, 80% of the
principal received is paid to the Class A-1 and A-2 certificates
sequentially and 20% will be allocated pro rata to the other certificates.
Principal distributions are made sequentially from the most senior to
the most junior class after the outstanding principal balance of the Pooled
Trust Assets (exclusive of Trust Assets related to Specially Service Mortgage
Loans) is less than 20% of the initial principal balance of the
Trust Assets. All losses and shortfalls are allocated first to
the relevant junior interest, and then to Classes L, K,
J, H, G, F, E, D, C, B,
and A-2 in that order, and then to Class A-1.
The pool has experienced losses of $161,948 since securitization.
There are currently two loans in special servicing which are the Menlo
Oaks Corporate Center loan ($59.4 million; 9%
of the pooled balance) and the Hilton San Diego Mission Valley Hotel loan
($20.3 million; 3%). The Menlo Oaks Corporate
Center loan was transferred to special servicing on October 2009 due to
maturity default. The collateral is an office park located in the
Menlo Park submarket of San Francisco, California. As of
May 2010, occupancy at the center has dropped to 56% from
73% at securitization. The borrower and lender are negotiating
a forbearance. The loan collateral was appraised on January 4,
2010 for $71 million.
The Hilton San Diego Mission Valley Hotel loan was transferred to special
servicing in February 2010 due to maturity default. The collateral
is a 349-room full service hotel located in San Diego, California.
Revenue per available room (RevPAR) for 2009 was $77.56
which was down 25% from the 2008 RevPAR of $122 which is
slightly higher than the 17.5% decline in San Diego RevPAR
for 2009 according to Smith Travel Research. The loan is pending
return to the master servicer following a modification which included
a two year forbearance, a $3 million principal prepayment,
and a cash flow trap after debt service to be applied to the loan.
Moody's weighed average pooled loan to value (LTV) ratio is 90.2%,
compared to 83.8% at last review on March 19, 2009
and 66.1% at securitization. Moody's pooled
stressed debt service coverage (DSCR) is 1.30X, compared
to 1.32X at last review and 1.38X at securitization.
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. Large loan transactions have
a Herf of less than 20. The pool has a Herf of 7 compared to 8
at Moody's prior review.
The three largest loans in the pool represent 55% of the pooled
balance. The RREEF Silicon Valley Office Portfolio Loan ($139.8
million -- 21%), a 27% portion of a pari passu
split loan structure, is the largest in the pool. The loan
is secured by a 5.3 million square foot portfolio of office/R&D
properties located in Santa Clara, Sunnyvale, Mountain View,
Milpitas and San Jose, California. Occupancy as of December
2008 was 83%, compared to 71% at securitization.
At securitization, the largest tenant was Maxtor, leasing
approximately 15% of the NRA on multiple leases that expire in
2011. Moody's current loan to value ratio ("LTV") and stressed
DSCR for the loan are 91.4% and 1.15X. Moody's
underlying rating for the pooled balance is Ba3, the compared to
Ba2 at last full review.
The second largest loan in the pool is the Doubletree Metropolitan Loan
($125.0 million -- 18%) which is secured by
a 755-room full service hotel located in Midtown Manhattan in New
York City. RevPAR for 2009 was $183, down 28%
from the 2008 RevPAR of $255. Hotels located in New York
City have begun to show improved performance based on the Smith Travel
Research 'US Hotel Industry Performance for the month of July 2010' report.
Moody's anticipated RevPAR to increase in line with the New York City
hotel market. Moody's current loan to value ratio ("LTV") and stressed
DSCR for the loan are 69% and 1.69X. Moody's
underlying rating for the pooled balance is Baa1, the same as at
last full review.
The Marina Village loan ($112.5 million, 17%)
is the third largest loan in the pool and currently on the master servicer's
watchlist. The loan is secured by a 1.2 million square foot
suburban office property in the Alameda submarket of Oakland, California.
Occupancy and net cash flow have fallen significantly since securitization
and the loan matures in February of 2011. As of July 2010,
occupancy for the property was 74% compared to 80% at securitization.
At the time of securitization, the property had recently lost two
tenants but had historically performed better. A return to prior
cash flow levels had been anticipated at securitization, however
this has not materialized. Moody's current loan to value ratio
("LTV") is over 100% and Moody's stressed DSCR for the loan
is 0.73X. Moody's underlying rating for the pooled
balance is C, compared to Ba3 at last full 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, and confidential and proprietary Moody's
Investors Service information.
Moody's 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.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades 11 CMBS Classes and Affirms One Class of JPMCC 2006-FL2
250 Greenwich Street
New York, NY 10007