Fitch Affirms MSBAM 2016-C29.
KEY RATING DRIVERS
Stable Performance: Overall pool performance remains stable and generally in line with expectations at issuance, with minimal paydown or changes to credit enhancement. As of the March 2018 distribution date, the pool's aggregate principal balance paid down by 1.2% to $799.9 million from $809.5 million at issuance. There have been no specially serviced loans since issuance.
Fitch Loans of Concern: Fitch has designated three loans (6.7% of pool) as Fitch Loans of Concern (FLOCs), including two of the top 15 loans (5.7%).
The largest FLOC, Reger Industrial Portfolio (3.8%), is secured by a portfolio of seven cross-collateralized and cross-defaulted industrial properties located in South Carolina. As of the October 2017 rent roll, the overall portfolio was 99.2% occupied; however, there is significant upcoming lease rollover across the portfolio, including 63.9% of the net rentable area (NRA) in 2018, 19.8% in 2019 and 15.5% in 2020. A large portion of the 2018 rollover is associated with Westinghouse Electric Company (WEC), the sole tenant at the West Columbia, SC property (19.5% of portfolio NRA; 26.1% of total portfolio base rents; 27.9% of allocated loan amount), which has a lease expiring in August 2018. In March 2017, WEC filed for Chapter 11 bankruptcy protection due to cost overruns on construction of two U.S. nuclear power plants. Fitch's inquiry to the servicer for updates on the expiring leases remains outstanding.
The second largest FLOC, Barringer Technology Center (1.9%), is secured by a three-building industrial and mixed-use property located in Baton Rouge, LA. At issuance, ITT Educational Services (ITT) was the largest tenant, leasing 15.4% of the NRA through April 2020. However, ITT ceased operations in September 2016 and subsequently vacated the property in October 2016. At issuance, Fitch had noted ITT was in financial distress. According to the servicer, a new 10-year lease was signed with KIMC Investments for 18.9% of the NRA to backfill the former ITT space plus an additional 5,400 sf. The property was 65.6% occupied as of the December 2017 rent roll, down from 72.8% at the time of issuance; however, occupancy is expected to increase to 86.4% upon commencement of the KIMC Investments lease in May 2018, and taking into account a newly lease signed with Wave Electronics (1.9% of NRA) that commenced in March 2018. Despite the positive leasing momentum, the property has significant upcoming lease rollover, with 15.4% of the NRA scheduled to expire in 2018, 6.4% in 2019 and 30.9% in 2020.
The third FLOC, Brazie Industrial Portfolio (1%), which is secured by a portfolio of two industrial properties located in Gresham and Portland, OR, was flagged for upcoming lease rollover concerns. According to March 2018 watchlist commentary, the second largest tenant at one of the properties (17% of total portfolio NRA) has a scheduled lease expiration in August 2018. The servicer has requested a leasing update from the borrower, which remains outstanding.
Pool and Loan Concentrations: The top 10 loans comprise 41.2% of the pool, which is below the 2016 average of 54.8%. It was also noted at issuance that the Loan Concentration Index (LCI) was lower than average for this transaction. Loans secured by retail properties represent 37% of the pool by balance, including one regional mall (5.8%) and two outlet properties (9.1%) in the top 15. The largest loan, Grove City Premium Outlets (7%) is secured by an outlet property located in Grove City, PA sponsored by Simon Property Group, L.P. The third largest loan, Penn Square Mall (5.8%), is secured by the leasehold interest in a regional mall anchored by Dillard's, Macy's and JC Penney located in Oklahoma City, OK. The 12th largest loan, Gulfport Premium Outlets (2.1%) is secured by the leasehold interest in an outlet property located in Gulfport, MS also sponsored by Simon Property Group, L.P.
Leasehold Interests: Approximately 11.2% of the pool consists of leasehold-only ownership interests, which is greater than the 2016 average of 4.2%. The leasehold-only collateral in this transaction includes three of the top 15 loans, Penn Square Mall (5.8%), Le Meridien Cambridge MIT (2.6%) and Gulfport Premium Outlets (2.1%). Each of these ground leases is on a long-term lease extending at least 30 years beyond their respective loan terms.
Loans with Additional Debt: The concentration of loans with subordinate debt in this pool (four loans, 11.8% of the pool) is above the 2016 average of 9.3%.
The Rating Outlooks on all classes remain Stable. Fitch does not foresee positive or negative ratings migration until a material economic or asset-level event changes the transaction's overall portfolio-level metrics.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
--$20.3 million class A-1 at 'AAAsf'; Outlook Stable;
--$39.5 million class A-2 at 'AAAsf'; Outlook Stable;
--$58.5 million class A-SB at 'AAAsf'; Outlook Stable;
--$190 million class A-3 at 'AAAsf'; Outlook Stable;
--$248.8 million class A-4 at 'AAAsf'; Outlook Stable;
--$557.1 million class X-A* at 'AAAsf'; Outlook Stable;
--$97.1 million class X-B* at 'AA-sf'; Outlook Stable;
--$54.6 million class A-S at 'AAAsf'; Outlook Stable;
--$42.5 million class B at 'AA-sf'; Outlook Stable;
--$35.4 million class C at 'A-sf'; Outlook Stable;
--$42.5 million class X-D* at 'BBB-sf'; Outlook Stable;
--$22.3 million class X-E* at 'BB-sf'; Outlook Stable;
--$8.1 million class X-F* at 'B-sf'; Outlook Stable;
--$42.5 million class D at 'BBB-sf'; Outlook Stable;
--$22.3 million class E at 'BB-sf'; Outlook Stable;
--$8.1 million class F at 'B-sf'; Outlook Stable.
*Notional amount and interest-only.
Fitch does not rate the class X-G, X-H, G, or H certificates.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Jul 3, 2018|
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