Fitch Affirms GSMSC 2007-GG10

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed 19 classes of GS Mortgage Securities Trust series 2007-GG10 (GSMSC) commercial mortgage pass-through certificates series 2007-GG10. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations reflect the transaction's stable performance since Fitch's last review. Fitch modeled losses of 17.6% of the remaining pool; expected losses on the original pool balance total 23.4%, including $887.1 million (11.7% of the original pool balance) in realized losses to date. Fitch has designated 65 loans (65.5%) as Fitch Loans of Concern, which includes 15 specially serviced assets (8.6%).

As of the December 2015 distribution date, the pool's aggregate principal balance has been reduced by 33.8% to $5.01 billion from $7.56 billion at issuance. Per the servicer reporting, 13 loans (11.3% of the pool) are defeased. Interest shortfalls are currently affecting classes A-J through S.

The pool contains many highly leveraged performing loans originated at the previous market peak which may not be able to refinance at maturity. While many of these loans have institutional quality borrowers, many have failed to fully recover from stressed levels seen during the downturn. Additionally, the remaining pool contains 23 loans totaling $560.7 million which were modified at some point. Fifteen of these modified loans were split into A/B notes structures where Fitch deems the B-notes to have very slim prospects of recovery. One such modified loan (0.5% of the pool) re-defaulted at its modified maturity date and is now back with the special servicer.

The largest contributor to expected losses is the Shorenstein Portland Portfolio loan (13.9% of the pool). The largest loan in the pool is secured by a portfolio of 46 office buildings encompassing 3,882,036 square feet (sf) located throughout greater Portland, OR. As of June 2015, the portfolio was approximately 88.6% occupied, which is an improvement over year-end 2014 occupancy of 81.7%. While the increase in occupancy is positive, leases signed prior to 2007 were at rates which are now above market. Renewals and replacement leases have been at lower rates and have required concessions. The June 2015 net cash flow (NCF) debt service coverage ratio (DSCR) was 1.02x and is expected to trend upwards over the next year as concessions burn off and market fundamentals continue to improve.

The next largest contributor to expected losses is the Wells Fargo Tower loan (11%), which is secured by a 1,385,325-sf office tower located in the Los Angeles, CA, CBD. Significant lease roll occurred in 2013 when tenants occupying approximately 100,000-sf vacated the property, driving occupancy down to 85.8%. As of June 2015, occupancy had fallen further to 80%. Due to market conditions, rental rates have remained flat to slightly declining. NCF DSCR has consistently been below 1.0x but increased to 1.04x as of June 2015. Upcoming rollover is approximately 10% in 2016 and 14% in 2017.

The third largest contributor to expected losses is the specially-serviced 400 Atlantic Street loan (5.3%), which is secured by a 527,424-sf office property located in the Stamford, CT, CBD. The loan transferred to the special servicer in October 2014 when American Express (7% of net rentable area [NRA]) vacated at lease expiration. The second largest tenant also vacated its space in December 2015. The borrower has re-leased approximately 20% of the property which will bring occupancy to approximately 87% once the new tenants take occupancy. The largest tenant (51% of NRA) has vacated the property but continues to pay rent. The tenant has indicated that it will not renew its lease which expires in September 2018. A sub-tenant occupies approximately 65% of that space. The borrower and the special servicer are in discussions about a possible loan modification.

RATING SENSITIVITIES

The Rating Outlooks on classes A-4 and A-1A remain Negative due to the high leverage of the pool overall as well as the many large loans that struggle with performance issues. These classes could be downgraded if performance continues to deteriorate. Downgrades to distressed classes will occur as losses make their way up the capital stack, if additional loans become specially serviced or fail to pay off at maturity. Upgrades are unlikely unless there is significant paydown or defeasance.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch affirms the following classes as indicated:

--$3.3 billion class A-4 at 'Asf'; Outlook Negative;--$343.8 million class A-1A at 'Asf'; Outlook Negative;--$756.3 million class A-M at 'CCCsf'; RE 50%;--$519.9 million class A-J at 'Csf'; RE 0%;--$75.6 million class B at 'Csf'; RE 0%;--$30.2 million class C at 'Dsf'; RE 0%.

The class A-1, A-2, A-3 and A-AB certificates have paid in full. Classes D through Q have been reduced to zero balance by realized losses and are affirmed at 'Dsf', RE 0%. Fitch does not rate the class S certificates. Fitch previously withdrew the rating on the interest-only class X certificates.

Structured Finance >> CMBS >> Criteria Reports

Additional information is available at www.fitchratings.com.

Applicable CriteriaGlobal Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395

Additional DisclosuresDodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997558Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997558Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160106006712/en/

Fitch Ratings
Contact:
Primary Analyst
R. Brook Sutherland
Senior Director
+1-312-606-2346
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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