Fitch Affirms MSCI 1998-WF2

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed all classes of Morgan Stanley Capital I Trust commercial mortgage pass-through certificates, series 1998-WF2. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations follow the overall stable performance of the underlying collateral. The pool has experienced 96.7% of collateral reduction since issuance. Although credit support to the outstanding bonds is strong, the pool is heavily concentrated and there are four loans on the servicer's watchlist representing 81.5% of the pool.

Pool Concentration: The pool is extremely concentrated, with the largest loan representing 73.4% of the pool balance, which is also considered a Fitch loan of concern. Should this loan default, interest shortfalls would likely impact all of the rated classes. The pool is also concentrated by property quality, as most of the collateral is considered class B/C, and property type, with loans representing 7.4% of the pool backed by single-tenant properties.

Vacant Properties: Two loans, representing 73.9% of the pool, are backed by properties that are completely or nearly vacant. The largest loan, 1201 Pennsylvania Avenue is secured by an office property that is 13.5% occupied following the departure of two major tenants in the last year. The second loan is secured by an industrial property that became completely vacant after the sole tenant's lease expired in May 2016. Although both of these loans have been flagged for the watchlist, there are no servicer comments available.

Single-tenant Properties: Three loans, representing 7.4% of the pool, are secured by single-tenant assets. The largest of these is a retail property located in Provo, Utah. The sole tenant is Bed, Bath & Beyond, with a lease expiration that is concurrent with the loan's scheduled maturity in 2018. The property is well located in a heavily trafficked retail node and is shadow-anchored by many national retailers. The tenant has three five-year extension options remaining. The next largest single-tenant property is occupied by Walgreens on a long-term lease that extends beyond loan maturity. The final single-tenant property backs a loan that is fully amortizing.

Low Leverage: Including the largest loan, six loans representing 76.4% of the pool are fully amortizing. The pool's current weighted-average debt yield is 34.7%. Excluding the largest loan, which Fitch has modeled as a term default given the vacancy concerns and extended amortization timeline, Fitch's stressed loan-to-value (LTV) for the pool is 37.5%. There is also one defeased loan, representing 9.6% of the pool.

The largest loan (73.4% of the pool) is 1201 Pennsylvania Avenue, which is secured by an office building located a few blocks from the White House in Washington, D.C. Covington & Burling, previously the largest tenant, vacated in 2015 ahead of its August 2016 lease expiration. The most recent rent roll, dated June 2016, indicates several leases in addition to Covington & Burling have expired, totalling 60.2% of the net rentable area (NRA). This results in an occupancy of 13.5%. The East End submarket reported an average vacancy rate of 10.6% for office space as of 3Q16, according to Reis. Although the subject is nearly vacant, it is well located on Pennsylvania Avenue between 12th and 13th Streets. The loan's leverage point is low given the location, at $58.40 per square foot, and the debt is fully amortizing. The loan is not scheduled to mature until April 2023. Fitch requested updated leasing information from the master servicer; however, never received a response.

RATING SENSITIVITIES

The Rating Outlook for class J has been revised to Stable from Positive. The class is partially covered by defeasance and is well protected from projected loss. However, there is very little information available for 1201 Pennsylvania Avenue, which represents 73.4% of the pool and is secured by a property which is 13.5% occupied. Given this, Fitch applied additional stresses which resulted in a conservative recoverability view. Should this loan default, Fitch's projected loss estimates would increase and interest shortfalls would likely impact the senior most class. Therefore, a rating cap of 'A' was applied. The Rating Outlook for class L has been revised to Negative from Stable to reflect this sensitivity. It is possible that class K could also be downgraded under such a scenario, while a future upgrade is unlikely given the propensity for interest shortfalls should a default occur. The pool is highly concentrated with 10 loans remaining, and the remaining collateral is of lower quality. Downgrades would be possible if any of the outstanding loans are not able to refinance or if they default prior to maturity.

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 classes and assigned Outlooks as indicated:

--$6.8 million class J at 'Asf', Outlook revised to Stable from Positive;

--$8 million class K at 'BBBsf', Outlook Stable;

--$15.9 million class L at 'BBsf', Outlook revised to Negative from Stable;

--$4.1 million class M at 'Dsf', RE 100%.

The class A-1, A-2, B, C, D, E, F, G and H certificates have paid in full. Fitch does not rate the class N certificate. Fitch previously withdrew the rating on the interest-only class X certificate.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)https://www.fitchratings.com/site/re/886006

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)https://www.fitchratings.com/site/re/882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)https://www.fitchratings.com/site/re/883130

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)https://www.fitchratings.com/site/re/873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014643

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014643

Endorsement Policyhttps://www.fitchratings.com/regulatory

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Source: Fitch Ratings

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