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Rating Action:

Moody's Downgrades 11 and Affirms 13 CMBS Classes of GSMS 2007-GG10

Global Credit Research - 05 Oct 2010

Approximately $7.40 Billion of Structured Securities Affected

New York, October 05, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of 11 classes and affirmed 13 classes of GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through Certificates, Series 2007-GG10 as follows:

Cl. A-1, Affirmed at Aaa (sf); previously on Oct 26, 2007 Definitive Rating Assigned Aaa (sf)

Cl. A-2, Affirmed at Aaa (sf); previously on Oct 26, 2007 Definitive Rating Assigned Aaa (sf)

Cl. A-3, Affirmed at Aaa (sf); previously on Oct 26, 2007 Definitive Rating Assigned Aaa (sf)

Cl. A-AB, Affirmed at Aaa (sf); previously on Oct 26, 2007 Definitive Rating Assigned Aaa (sf)

Cl. X, Affirmed at Aaa (sf); previously on Oct 26, 2007 Definitive Rating Assigned Aaa (sf)

Cl. A-4, Downgraded to A1 (sf); previously on Sep 22, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade

Cl. A-1A, Downgraded to A1 (sf); previously on Sep 22, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade

Cl. A-M, Downgraded to Baa1 (sf); previously on Sep 22, 2010 A2 (sf) Placed Under Review for Possible Downgrade

Cl. A-J, Downgraded to B2 (sf); previously on Sep 22, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade

Cl. B, Downgraded to B3 (sf); previously on Sep 22, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade

Cl. C, Downgraded to Caa2 (sf); previously on Sep 22, 2010 B2 (sf) Placed Under Review for Possible Downgrade

Cl. D, Downgraded to Caa3 (sf); previously on Sep 22, 2010 B3 (sf) Placed Under Review for Possible Downgrade

Cl. E, Downgraded to C (sf); previously on Sep 22, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade

Cl. F, Downgraded to C (sf); previously on Sep 22, 2010 Ca (sf) Placed Under Review for Possible Downgrade

Cl. G, Downgraded to C (sf); previously on Sep 22, 2010 Ca (sf) Placed Under Review for Possible Downgrade

Cl. H, Downgraded to C (sf); previously on Sep 22, 2010 Ca (sf) Placed Under Review for Possible Downgrade

Cl. J, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

Cl. K, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

Cl. L, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

Cl. M, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

Cl. N, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

Cl. O, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

Cl. P, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

Cl. Q, Affirmed at C (sf); previously on Nov 19, 2009 Downgraded to C (sf)

RATINGS RATIONALE

The downgrades are due to higher expected losses for the pool resulting from realized and anticipated losses from specially serviced and troubled loans. The 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 affirmed classes are sufficient to maintain the current ratings.

On September 22, 2010 Moody's placed 11 classes on review for possible downgrade. This action concludes our review.

Moody's rating action reflects a cumulative base expected loss of 16% of the current balance. At last review, Moody's cumulative base expected loss was 14%. Moody's stressed scenario loss is 30% 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 unemployment levels.

The principal methodology used in rating GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through Certificates, Series 2007-GG10 was "CMBS: Moody's Approach to Rating Conduit Transactions" rating methodology published in September 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 moodsy.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 underlying ratings 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 underlying ratings 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 December 10, 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 any third party due diligence reports on the underlying assets or financial instruments in this transaction during the previous 6 months.

As of the September 17, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 0.4% to $7.53 billion from $7.56 billion at securitization. The Certificates are collateralized by 200 mortgage loans ranging in size from less than 1% to 9% of the pool, with the top ten loans representing 42% of the pool. The pool does not contain any defeased loans or loans with underlying ratings.

Forty-eight loans, representing 26% 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.

Two loans have been liquidated from the pool since securitization, resulting in an aggregate $12.6 million loss (52% loss severity on average). Currently, 31 loans, representing 19% of the pool, are in special servicing. Two of the specially serviced loans, representing 4% of the pool, are secured by properties for which Maguire Properties L.P. (Maguire) is the sponsor. The 550 South Hope Street Loan ($165.0 million -- 2% of the pool), which is the largest specially serviced loan, is secured by a 566,000 square foot office building located in Los Angeles. The loan was transferred to special servicing in August 2009 due to imminent default and is in the process of foreclosure. The Maguire Anaheim Portfolio Loan ($103.5 million -- 1% of the pool), which is the fourth largest specially serviced loan, is secured by two office properties located in Orange County, California which total 333,500 square feet. The loan was transferred to special servicing in August 2009 for imminent default and is currently 90+ days delinquent.

The remaining 29 specially serviced loans are secured by a mix of property types and are either 90+ days delinquent, real estate owned (REO) or in the foreclosure process. The master servicer has recognized an aggregate $550 million appraisal reduction. Moody's has estimated an aggregate $762.5 million loss (54% expected loss on average) for the specially serviced loans.

Moody's has assumed a high default probability for 20 poorly performing loans representing 23% of the pool. Two of these loans are sponsored by Maguire - Wells Fargo Tower ($550.0 million -- 7% of the pool) and Two California Plaza ($470.0 million -- 6% of the pool). Moody's has estimated a $262.3 million loss (16% expected loss based on a 50% probability default) from the troubled loans.

Moody's was provided with full year 2009 and partial year 2010 operating results for 76% and 70% of the pool, respectively. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 124% compared to 131% at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 11.0% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.0%.

Excluding specially serviced and troubled loans, Moody's actual and stressed DSCRs are 1.23X and 0.80X, respectively, compared to 1.19X and 0.79X 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 34 compared to 36 at Moody's prior review.

The top three performing conduit loans represent 23% of the pool. The largest loan is the Shorenstein Portland Portfolio Loan ($697.2 million -- 9.3% of the pool), which is secured by 16 office properties located in Portland, Oregon. The portfolio totals 3.8 million square feet. As of March 2010, the portfolio's was 80% leased compared to 82% at last review and 94% at securitization. Performance had been stable through 2008, however, operating income declined in 2009 due to a drop in occupancy and increased expenses. Net operating income (NOI) for full year 2009 was approximately 6% lower than in 2008. The loan is interest-only for the entire term. Moody's LTV and stressed DSCR are 139% and 0.72X compared to 132% and 0.74X, respectively, at last review.

The second largest loan is the Wells Fargo Tower Loan ($550.0 million -- 7.3% of the pool), which is secured by a 1.4 million square foot Class A office building located in Los Angeles, California. As of June 2010, the property was 95% leased compared to 93% at last review. The largest tenant is Wells Fargo, which occupies 22% of the net rentable area (NRA) with leases expiring on a staggered basis through 2013. The loan sponsor is Maguire. Moody's is concerned about the property's near-term lease rollover exposure, given the softness of the Los Angeles office market and concerns about Maguire's ability to fund tenant costs due to its current financial issues. The loan is on the servicer's watchlist due to low debt service coverage and sponsor concerns. The loan is interest-only for the entire term. Moody's LTV and stressed DSCR 152% and 0.61X compared to 161% and 0.57X, respectively, at last review.

The third largest loan is the Two California Plaza Loan ($470.0 million -- 6.2% of the pool), which is secured by a 1.3 million square foot class A office building located in downtown Los Angeles, California. The loan sponsor is Maguire. As of March 2010, the property was 83% leased, essentially the same since last review, compared to 90% at securitization. The decline in occupancy was due to Aames Financial Corporation, which leased 11% of the NRA at securitization, declaring bankruptcy and vacating the property. Based on information provided by the master servicer, the largest tenant, Deloitte & Touche, which leases 26% of the NRA through March 2015, has exercised its surrender rights under its lease and will vacate approximately 51,506 square feet (4% of the NRA) effective August 2010. Moody's is concerned about the property's near-term lease rollover exposure, given the softness of the Los Angeles office market and concerns about Maguire's ability to fund tenant costs due to its current financial issues. The loan is on the servicer's watchlist due to low debt service coverage and sponsor concerns. The loan is interest-only for the entire term. Moody's LTV and stressed DSCR are 189% and 0.49X compared to 185% and 0.50X, respectively, at last review.

REGULATORY DISCLOSURES

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 information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purpose 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.

New York
Juan Acosta
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's Downgrades 11 and Affirms 13 CMBS Classes of GSMS 2007-GG10
No Related Data.
© 2018 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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