CHICAGO, May 23 /PRNewswire/ -- Asset Securitization Corp. Commercial
Mortgage Pass-Through Certificates, Series 1997-MDVII (the Transaction)
$27.5 million Class A-5 has been downgraded to 'B+' (Single-B-Plus) from 'BB'
(Double-B) by Duff & Phelps Credit Rating Co. (DCR). DCR has reaffirmed
$40.0 million Class A-3 at 'A' (Single-A) and $37.5 million Class A-4 at
'BBB-' (Triple-B-Minus). In conjunction with the rating action, DCR has
removed Classes A-3, A-4 and A-5 from Rating Watch-Down.
The certificates are collateralized by seven mortgage loans on
71 properties with an aggregate outstanding principal balance of $471.8 as of
the May 15, 2000 distribution date. The loans range in size from 5 percent to
33 percent of the pool based on the current principal balances.
The rating actions reflect the continued decline in operating performance
of the Fairfield Inns portfolio. Of the remaining six assets in the
Transaction, only the Insurance Company of the West loan showed a slight
decline in financial strength. All other assets have experienced consistent,
if not better, operating performance.
The Fairfield Inns portfolio currently represents 33 percent of the
Transaction's outstanding balance. The portfolio consists of 50
cross-collateralized and cross-defaulted limited service hotels flagged as
Fairfield Inns by Marriott and located in eight different regions. Since
origination, the portfolio's aggregate operating performance has been in
decline. For the year ending (YE) December 1998, the portfolio's aggregate
net operating income (NOI) was $32.7 million. For the YE December 1999, the
portfolio's aggregate NOI had declined to $29.2 million. Based on this
decline, DCR's Stressed Debt Service Coverage Ratio (DCR SDCR) declined to
1.04 times for YE December 1999 from 1.21 times for YE December 1998.
The main factor responsible for the continued decline in the operating
performance of the portfolio has been over-supply in the markets where the
properties are located. The continued addition of limited service hotels has
not only affected revenues through occupancy and rate reduction, but has also
affected operating expenses through higher labor costs, and the need to have
more money invested in property appearance. So far, it appears that reduced
demand has not been a major factor in the declining performance of these
properties, however, DCR is aware of, and concerned with, the potential for a
decline in demand. In light of the heavy supply of limited service hotel
product, the low DCR DSCR, and the realistic possibility of a decline in
demand, DCR felt that it was necessary to adjust the ratings on the lowest
classes of the Transaction.
DCR's assessment of the financial position of the Insurance Company of the
West (ICW) also influenced the rating actions on the Transaction. The ICW
loan currently represents 5.1 percent of the transaction. The loan is
collateralized by an office building in San Diego, Calif., which is triple net
leased to ICW. DCR does not publicly rate ICW, however, for the purpose of
the Transaction, DCR performed an internal credit analysis based on publicly
available information and noted a slight deterioration in ICW's financial
strength.
As already noted, the Transaction's five other assets have experienced
stable, if not improving, operating performance. DCR will continue to monitor
the trend in operating performance for the Fairfield Inns pool on a quarterly
basis. Should the pool's performance continue to deteriorate, further rating
actions may be necessary.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Erin Stafford, 312-606-2308, or Eduardo
Hernandez, 212-908-0721, both of Duff & Phelps Credit Rating Co.
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