Wachovia Bank Commercial Mortgage Trust Series 2007-C31 Class F Rating Raised

  • We raised our rating on class F from Wachovia Bank Commercial Mortgage Trust's series 2007-C31, a U.S. CMBS transaction, to 'B- (sf)' from 'D (sf)'.
  • The upgrade reflects our analysis of the transaction, which included a review of the credit characteristics and performance of the remaining assets in the pool, the transaction's structure, and the liquidity available to the trust.
 
NEW YORK (S&P Global Ratings) April 2, 2019--S&P Global Ratings today raised 
its rating to 'B- (sf)' from 'D (sf)' on the class F commercial mortgage 
pass-through certificates from Wachovia Bank Commercial Mortgage Trust's series
2007-C31, a U.S. commercial mortgage-backed securities (CMBS) transaction. 
 
The upgrade reflects our expectation of credit enhancement, which is in line 
with the raised rating level as well as the reduced trust balance. While the 
available credit enhancement level may suggest further positive rating 
movement on class F, our analysis also considered the class' expected 
duration, the collateral backing the trust, and its susceptibility to reduced 
liquidity support from the nine specially serviced assets ($117.8 million, 
76.8% of the asset balance) and the sole performing FMC Technologies loan 
($35.6 million, 23.2%), which is on the master servicer's watchlist. 

We previously lowered our rating on class F to 'D (sf)' due to accumulated 
interest shortfalls that we expected to remain outstanding for a prolonged 
period. We raised our rating on this class today because the accumulated 
interest shortfalls have been resolved in full and we do not believe a further 
default of the bond is virtually certain. 
 
TRANSACTION SUMMARY 
 
As of the March 15, 2019, trustee remittance report, the trust pool balance 
was $160.0 million, which is 2.7% of the pool balance at issuance. However, 
the collateral pool balance was $153.4 million for the same reporting period. 
The pool currently includes two loans and eight real estate-owned (REO) 
assets, down from 189 loans at issuance. Nine of these assets are with the 
special servicer, and one loan is on the master servicer's watchlist. 
 
To date, the transaction has experienced $318.9 million in principal losses, 
or 5.5% of the original pool trust balance. We expect losses to reach 
approximately 6.7% of the original pool trust balance in the near term based 
on losses incurred to date and additional losses we expect upon the eventual 
resolution of the nine specially serviced assets. 
 
CREDIT CONSIDERATIONS 
 
As of the March 15, 2019, trustee remittance report, nine assets in the pool 
were with the special servicer, C-III Asset Management LLC (C-III). Details of 
the three largest specially serviced assets are below: 
 
  • The Toll Brothers Corporate Headquarters REO asset ($34.7 million, 22.6%) is the second-largest asset in the pool and has a total reported exposure of $35.2 million. The asset is a 203,000-sq.-ft. suburban office building in Horsham, Pa. The loan was transferred to the special servicer on Feb. 1, 2017, due to imminent maturity default (which matured on March 11, 2017), and the property became REO on May 1, 2018. Although an appraisal reduction amount (ARA) of $15.4 million has been calculated against the asset, the property's cash flow is currently covering debt service. While the asset is currently 100% leased to Toll Brothers Inc., C-III indicated that the single tenant will vacate upon its Oct. 31, 2019, lease expiration. We expect a moderate loss (between 26% and 59%) upon this asset's eventual resolution.
  • The Scottsdale Medical Office REO asset ($29.9 million, 19.5%) has a total reported exposure of $34.7 million. The asset currently consists of two medical office buildings totaling 82,226 sq. ft. in Scottsdale, Ariz. The loan was transferred to the special servicer on Oct. 21, 2013, and the property became REO on June 4, 2014. An ARA of $27.5 million is in effect against the asset. The reported combined occupancy at the two buildings as of Feb. 28, 2019, was 57.8%. We expect a significant loss (greater than 60%) upon the asset's eventual resolution.
  • The St. Louis County Office Pool REO asset ($15.3 million, 10.0%) has a total reported exposure of $16.5 million. The asset currently consists of two suburban office properties totaling 136,748 sq. ft. in St. Louis, Mo. The loan was transferred to special servicing on Feb. 7, 2013, and the property became REO on July 17, 2014. The asset has been deemed nonrecoverable. The reported combined occupancy was 82.1% as of March 1, 2019. We expect a moderate loss upon its eventual resolution.
The six remaining assets with the special servicer each have individual 
balances that represent less than 7.10% of the total pool trust balance. We 
estimated losses for the nine specially serviced assets, arriving at a 
weighted-average loss severity of 60.7%. 

The FMC Technologies loan is the largest asset remaining in the pool and is 
secured by a 462,717-sq.-ft. flex industrial single-tenant property in 
Houston, Texas. The property is currently 100% leased to FMC Technologies 
('BBB+/Stable/A-2') until March 31, 2022. However, the May 24, 2018, property 
inspection report noted that the property is partly vacant. The loan has a 
reported debt service coverage of 2.12x as of year-end 2018. The loan is past 
its April 11, 2017, anticipated repayment date and has an April 11, 2037, 
final maturity date. We will continue to monitor the loan's performance and 
refinancing prospects.
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