monthly cmbs special servicing activity -...

Monthly CMBS Special Servicing Activity December 2013 (November 2013 Remittance)

Liquidations

With the November 2013 remittance, 115 CMBS loans were liquidated with a pre-liquidation unpaid balance of $1.6 billion. Realized

losses on these loans totaled $635 million, representing a 41% loss severity. Morningstar’s projected loss on these same loans was

$717 million, or a 46% loss severity.

In the previous month, 83 CMBS loans were liquidated with a pre-liquidation unpaid balance of $1.1 billion. Realized losses on these

loans totaled $387 million, representing a 35% loss severity. Morningstar’s projected loss on these same loans was $444 million. In

September 2013, 96 CMBS loans were liquidated with a pre-liquidation unpaid balance of $877 million. Realized losses on these loans

totaled $380 million, representing a 43% loss severity. Comparing quite favorably, Morningstar’s projected loss on these same loans

was $376 million. This activity remains low when compared to the record high $2.2 billion in liquidations across 136 loans in July 2013,

affected substantially by a massive liquidation in LBUB07C2, from which 21 loans totaling $773 million were liquidated. This is displayed

in Chart 1 below.

Morningstar Special Servicing Activity Report | December 2013 | ratingagency.morningstar.com | 800 299-1665

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Also worth noting, the time from servicing transfer to liquidation for loans liquidated with the November remittance averaged 25

months (with a low of one month and a high of 148 months). This compares to an average of 21 months (with a low of one month and

a high of 55 months) a month prior and an average of 27 months (with a low of one month and a high of 58 months) with the

September 2013 remittance.

Twelve loans with a principal balance of $208 million experienced a loss severity near of 1% or less, most likely related to workout fees,

while the remaining 103 loans with a principal balance of $1.3 billion experienced an average loss severity of 47%. Table 1 below

displays the ten largest realized losses experienced with the November 2013 remittance.

The largest loss was sustained by the $115 million Gwinnett Place asset, found in the MLT07C01 transaction. The REO property is a

566,908-sf two level, class B, regional mall built in 1984 renovated in 1988 in Duluth, Ga. The loan was transferred to special servicing

in October 2011 for imminent default and the loan matured in June 2012. Foreclosure occurred two months later in August 2012. The

property was offered for sale in a portfolio with six other large retail assets via C-III Realty and Eastdil Secured. The largest anchor

tenant at the site occupying 123,843 sf (21% GLA), Belk, had a lease scheduled to expire in August 2013 and it vacated upon lease

expiration. In addition, the Gwinnett College (32,000 sf /6% GLA) did not renew its lease in June 2013 potentially triggering co-tenancy

clauses at the property. These two vacancies left the mall less than 30% occupied. Furthermore, there were seven anchor spaces

available for lease within a one-mile radius of the property. A May 2013 appraisal valued the property at $18.6 million ($33/sf), down

from $81/sf in March 2012. Due to the vacancies, we discounted the appraised value by 50%, resulting in our forecasted loss of $114

million, or a 99% severity. The actual loss registered a 94% severity.

Prospectus Loan ID AssetName Prop Type Balance Realized Loss

Actual Loss

Severity

Morningstar Forecasted

Loss Severity

MLT07C01**11.000 Gwinnett Place RT $115,000,000 $107,560,227 94% 99%

BACM0604**21.000 Valley Square Office Park OF $34,458,180 $34,261,942 99% 95%

LBUB04C4**7 Enterprise Technology Center OF $28,766,465 $27,222,136 95% 57%

GSM206G6**3.000 Windsor Capital Embassy Suites Portfolio HT $167,075,091 $25,957,233 16% 28%

WBC07C31**11.000 Lembi Pool(4) MX $77,273,932 $21,134,222 27% 46%

GS207G10**37.000 GP2 HT $51,097,155 $18,414,162 36% 36%

JPC06C14**40.000 The Campbell House Crowne Plaza HT $15,254,371 $16,825,758 110% 81%

GS207G10**9.000 550 South Hope Street OF $118,022,388 $15,695,651 13% 0%

MLT07C01**47.000 Plaza Nine OF $18,228,226 $15,452,121 85% 88%

MSC06HQ9**21.000 Commerce Tower OF $19,483,609 $15,123,427 78% 95%

Table 1

Ten Largest Realized Losses - November 2013 (source: Morningstar)



The $28.8 million Enterprise Technology Center asset had the greatest variance between Morningstar’s forecasted loss ($16.4 million)

and actual loss ($27.2 million). The collateral was a 343,630-sf office property built in 1993 in Scotts Valley, Calif. The loan transferred

to the special servicer in April 2010 due to imminent default and the property became REO in November 2011. The collateral was

broken up and sold in two separate transactions. The office building sold in July 2013 for $12 million and the proceeds flowed through

with the September 2013 remittance and repaid advances, ASERs and some principal, reducing exposure by $10.6 million. A 6.7-acre

parcel of land subsequently sold at auction in September for $4 million. Since the office value and the land value were not reported

separately in the November 2012 appraised value of $16 million, we used the servicer's appraisal reduction as an indicator of the

residual land value.

By property type, the office, retail and hotel sectors represented about 80% of the November losses and 74% of the balance of

liquidated loans. In the prior month, the bulk of the October 2013 liquidations stemmed from the office and retail sectors, which

accounted for 81% of the October 2013 losses and 87% of the balance of liquidated loans, very close to September’s liquidation activity

when office and retail represented 82% of the September 2013 losses and 84% of the balance of liquidated loans. In November, the

industrial sector had the highest loss severity at 60%, while multifamily collateral had the lowest loss severity at 23%. Liquidation by

property type is summarized in Table 2 below.

Geographically, the collateral for November 2013 liquidated loans is found in 68 metropolitan statistical areas (MSA) with the Atlanta

MSA having the largest amount of realized losses. Looking at the top 10 MSAs, the Philadelphia MSA had the highest loss severity at

95% (however, this was the MSA’s only loan liquidation), followed closely by Kansas City, Mo., at 90%. The ten MSAs with the largest

realized losses are displayed in Table 3 below.

Property

Type Number of Loans Balance ($mm) Realized Loss ($mm)

Actual Loss

Severity

Morningstar

Forecasted Loss

Severity

Office 34 $546.9 $244.3 45% 39%

Retail 28 $356.8 $172.9 48% 58%

Hotel 9 $281.3 $95.9 34% 38%

Multifamily 26 $203.2 $46.8 23% 52%

Mixed-Use 7 $100.9 $32.9 33% 46%

Industrial 11 $70.5 $42.3 60% 55%

115 $1,559.6 $635.1 41% 46%

Table 2

Liquidated Loans by Property Type - November 2013 (source: Morningstar)



By special servicer, C-III handled the largest balance of liquidations at 32% and incurred the bulk of the losses at 50%. Liquidated loans

by special servicer are presented in Table 4 below.

MSA Number of Loans Balance ($mm) Realized Loss ($mm)

Actual Loss

Severity


Loss Severity

Atlanta 9 $183.2 $150.2 82% 85%

Phoenix 6 $50.4 $36.1 72% 70%

Philadelphia 1 $34.5 $34.3 99% 95%

Santa Cruz-Watsonville, CA 1 $28.8 $27.2 95% 57%

Central New Jersey 4 $34.5 $25.8 75% 71%

Chicago, IL 3 $30.6 $22.4 73% 57%

San Francisco 1 $77.3 $21.1 27% 46%

Los Angeles 2 $129.2 $20.9 16% 4%

Houston 4 $37.2 $19.5 52% 49%

Kansas City, MO 3 $24.2 $18.2 75% 90%

Table 3

November 2013 Liquidated Loans - Top Ten MSAs (source: Morningstar)

Special Servicer* Number of Loans

Balance

($mm)

Realized Loss

($mm)

Actual Loss

Severity


Loss Severity

C-III 50 $534.4 $317.8 59% 62%

CWCapital Asset Management 20 $365.0 $95.8 26% 36%

Torchlight Loan Services LLC 11 $279.8 $70.5 25% 39%

LNR Partners, Inc. 15 $232.8 $98.6 42% 45%

KeyBank 3 $52.0 $19.9 38% 35%

Bank of America 1 $31.5 $6.1 19% 19%

Midland Loan Services Inc. 3 $25.5 $4.9 19% 13%

Berkadia Commercial Mortgage 5 $18.9 $12.0 63% 44%

ORIX 5 $11.6 $3.3 28% 9%

Helios 1 $6.2 $5.2 84% 91%

Five Mile Capital Real Estate Advisors 1 $1.9 $1.0 53% 47%

115 $1,559.6 $635.1 41% 46%

*Reflects the most recently reported special servicer

Table 4

November 2013 Liquidated Loans by Special Servicer (source: Morningstar)



Special Servicing Transfers & Returns

After three months of special servicing transfer activity that remained below one billion dollars, November 2013 special servicing

transfer volume reached nearly $1.1 billion. That’s up from $892 million in October and $762 million in September 2013. The

November 2013 volume of loans returned to master servicing was at a three-month low of 29 loans with a UPB of $205 million,

registering an 80% decline compared to October’s $1.1 billion of returned loans and a 75% drop from September 2013. This is

displayed in Chart 2 below.

The ten largest newly transferred and returned loans are displayed in Tables 5 and 6 below, respectively.

Prospectus Loan ID AssetName Prop Type Balance ($mm)

Morningstar

Forecasted Loss

($mm)


Loss Severity

CD07CD5**1.000 Lincoln Square OF $160.0 $0 0%

GECC05C4**1.000 123 North Wacker OF $120.6 $23.1 19%

JPC06FL2**5.000 Marina Village OF $99.6 $11.6 12%

GCC07GG9**12.000 Buckingham Portfolio MF $63.3 $13.8 22%

CTG08C07**4.000 Lincoln Square OF $60.0 $0 0%

WBC07C31**31.000 Scottsdale Medical Office OF $36.5 $14.8 41%

JPC06C16**12.000 Capitol Commons OF $34.2 $0 0%

WBC04C12**000006 Eastdale Mall RT $27.6 $0 0%

MSC12C04**18.000 Independence Place - Ft. Campbell MF $20.2 $0 0%

GSM212G6**13.000 Olympia Medical Plaza OF $19.5 $0 0%

Table 5

Ten Largest Loans Transferred to Special Servicing - October 2013 (source: Morningstar)



The Lincoln Square loan is the largest loan transferred by balance. The loan was transferred for imminent default due to potential

negative cash flow issues. The property secures a $220 million whole-loan split into two pari passu loans: $160 million is secured in

CD07CD5 and $60 million is secured in CTG08C07. The building’s second largest tenant, the General Services Administration (48,000

sf, 12% of GLA), has a lease expiring in December 2013. Per our research, "GSA spokesman Dan Cruz said the GSA no longer needs

space in the building for federal agencies in the region and added that the agency will not renew its lease for about 48,000 square feet

when its term expires on Dec. 31. The GSA has leased the space at the 406,000-square-foot building for the FBI." Based on our

collateral analysis, we are not forecasting a loss on this loan.

The largest returned loan, One & Two Prudential Plaza, is secured by two interconnected office buildings with more than two million

combined sf of space in downtown Chicago. It was modified in early 2013 and returned to the master servicer in November. Based

on the modification, the $410 million whole-loan balance (there is an equal pari passu A-note and B-note in JPC06C16) was split into

a $336 million A-note and $74 million B-note. The pay rate for the A-note was reduced by 3% to 3.06%. This reduction in the A-note

payment, coupled with no payment on the B-note will result in ongoing interest shortfalls to the trust. Based on the note split, a

liquidation scenario is unlikely; however, we adjusted our valuation to reflect the $37 million B-note (JPC06LD7 allocable portion of

the hope-note) as the projected loss.

Prospectus Loan ID AssetName Prop Type

Balance

($mm)

Morningstar

Value ($mm)

Morningstar

LTV Resolution

JPC06LD7**2.000 One & Two Prudential Plaza OF $205.0 $172.6 123% Modified

LBC07C03**4.000 Bethany Phoenix Portfolio I MF $123.0 $86.3 139% Modified

BACM0704**1.000 Hines Office Portfolio A (Rollup) OF $122.5 $130.5 114% Modified

BSC07BB8**2.000 Prime Hospitality Portfolio HT $84.7 $123.2 165% Modified

BACM0801**3.000 IBP OF $74.2 $93.5 133% Modification denied

JPC07C18**11.000 Southside Works MX $45.4 $40.4 56% Modified

CSM06C05**8.000West Covina Village Community Shopping CenterRT $39.5 $57.0 109% Modified

CSM06C05**9.000 Wells Fargo Bank Tower OF $36.1 $57.0 116% Modified

BSC06P12**16.000 Gwinnett Regional Distribution Center IN $22.8 $24.9 105% Modified

BSC05T20**20.000 Manhattan Gateway Shopping Center RT $20.8 $31.9 65% Environmental policy agmt

Table 6

Ten Largest Loans Returned to Master Servicing - October 2013 (source: Morningstar)



Modified Loans

Modification activity has slowed over the past few months, with two loans modified in November 2013 at a combined balance of $18.7

million, displayed in Table 7 below and recent monthly modified loan activity in displayed in Chart 3. This follows $94 million and $665

million in CMBS loans that were reported were modified in October and September 2013, respectively.

The Casa Mediterrania Apartments loan was the largest November 2013 modified loan. The servicer has not provided details on the

modification.

Prospectus Loan ID AssetName Prop Type Balance ($mm)

Morningstar

Value ($mm)

Morningstar

LTV Modification Type

WBC07C30**92.000 Casa Mediterrania Apartments MF $15.0 $11.5 130% Not available

MSC04T13**70-001 Smokey Point Shopping Center RT $3.7 $5.0 74% Maturity extension

$18.7 $16.5

Table 7

Modified Loans - November 2013 (source: Morningstar)



To put the recent level of modification activity in perspective, we took a look at all active modified loans in our database and found the

following:

• There are 1,001 in active modified loans at $37.5 billion in our database, 80% of which (761 loans at $30.2 billion) were

completed in 2010-2012.

• Not surprisingly, 50% of the active modified loans are from the 2007 vintage alone, while 89% are from the 2005-2007 vintage

in aggregate.

• A bright spot is that modification activity declined significantly over the past three years from 2011 through 2013 with only 1%

of the active modified balance.

• Most modified loans (75%) are listed as ‘combination’ or ‘other’ in the database description, which comes from the IRP

reporting), while office, retail, and mixed-use collateral rank 1,2,3 by property type and represent a combined 70% of the

active modified universe.

• By special servicer, CW Capital, LNR and CIII are the most active by way of balance of modifications, representing 70% of the

universe of active modified loans.

Loan level details, Morningstar commentary, and servicer commentary (when available), can be found in a separate attachment for all

November 2013 liquidated loans, transferred and returned loans, and modified loans. Detailed Morningstar analyses and value

estimates for all these loans can be found in the respective Morningstar DealViews or Watchlists.

Morningstar Credit Ratings, LLC

Research and Surveillance

Steve Jellinek

Vice President – CMBS Analytical Services

267-960-6009

Frank Innaurato

Managing Director – CMBS Analytical Services

267-960-6002



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