Fitch Affirms GMAC Com'l Military Hsg Trust XVI, Joint Base Lewis-McChord Proj's $373MM Ctfs at 'AA'

Fitch Ratings affirms the following GMAC Commercial Military Housing Trust XVI, Joint Base Lewis-McChord Project certificates at 'AA':

--$39.0 million series 2010A;

--$124.0 million series 2008A;

--$72.4 million series 2004A;

--$137.4 million series 2002A.

The Rating Outlook is Stable.

SECURITY:

The certificates are secured by a first lien on all receipts of the project after operating expenses and a debt service reserve fund (DSRF). Project receipts are predominantly comprised of the monthly housing allowance deposited to a trustee held lockbox.

KEY RATING DRIVERS:

BASIC HOUSING ALLOWANCE: Current and projected basic allowance for housing (BAH) experienced cumulative increases from 2010 to 2014 at E-1 to E-5 ranks. The ranks of E-1 to E-5 occupy more than 50% of the family housing. However, due to the mix of rentals by rank the aggregate increases for the last five years are just slightly better than projected at issuance of the 2010 bonds.

STRONG OCCUPANCY: The project has maintained high occupancy of over 96% except for May and June of 2014 due to an accelerated deactivation of a stryker brigade. Equity Residential

(EQR) states that occupancy is currently over 95%.

ADEQUATE DEBT SERVICE COVERAGE: The debt service coverage ratios (DSCR) trailing 12 month average is 1.68x at June 2014, 1.68x at December 2013 and 1.65x December 2012 but lower than year end 2011 of 1.80x. The coverage level is calculated on all outstanding parity debt.

OPERATING EXPENSE CHALLENGES: Some operating expenses have increased more than expected. Those increases are related to various maintenance and utility expense issues.

LOW BASE CLOSURE RISK: Joint Base Lewis McChord (JBLM) is the premiere military installation on the West coast. The 2005 Base Realignment and Closure Commission (BRAC) directed a merge of Ft. Lewis with McChord Air Force Base.

RATING SENSITIVITIES

--Management's ability to maintain high occupancy levels and control operating expenses; and/or

--Annual BAH decreases, which may put negative pressure on the rating.

CREDIT SUMMARY:

All certificates are structured with a level debt service for their term after an interest only period during construction. Debt service coverage levels are covenanted to be maintained at 1.5 times (x) over the life of the certificates and are currently demonstrating coverage over 1.68x based on the combined cash flows of phases I through IV. The phases correspond with the series certificates issued 2002 through 2010, respectively.

In addition to the strong debt service coverage on the certificates, certificate holder security is further enhanced by an equity contribution of $89 million from the department of the Army, $10 million in equity from EQR and a cash funded DSRF sized at approximately six-month maximum annual debt service of the combined certificates. Additionally, the project has a surety bond in place of a DSRF with AMBAC on the 2002 and 2004 issuances. While a six-month cash funded DSRF is not typical for military housing bonds with investment grade ratings and the surety bonds from AMBAC is not considered a credit strength, the performance of the phased in project in regard to delivery of new units and the equity somewhat mitigates the DSRF sizing concern. Common in most privatized military housing structures, the ground lease runs, for 50 years.

The property and development manager for JBLM Project is Equity Residential. EQR has a Fitch rating of 'BBB+' as of March 2014 with a Stable Outlook. EQR has performed the operations since the first financing and has been able to maintain a set level of available family housing units during the construction which provide an adequate revenue stream. It is important to note that construction is primarily for single family housing and therefore not considered a complex construction project. This was one of the first military housing projects under the military housing privatization initiative and EQR continues to deliver under the terms of revised contract.

The total end state upon completion of all phases at Ft. Lewis and McChord AFB was 4,964 single family units until last year when that total was revised to 4,994. Under a new project out year plan agreed to by all military parties and EQR, as this is now a joint base (Army and Air Force), the demolition of 109 units is being pushed off to 2018. New unit delivery is on or ahead of schedule. That schedule allows for the 109 units to be available for rental and then demolished in 2018 to provide additional revenue until 2018. The new project out year plan uses the revenue to make additional capital improvements to the housing stock as well as fund renovations on the additional 30 end state units. This also acts as positive when looking at DSCR as the BAH challenges and the operating expense challenges are somewhat mitigated by the utilization of units for a longer period than originally projected at the 2010 financing.

All phases of the project involved the acquisition, development, demolition, construction/renovation, rental and management of 4,994 end state military family housing units, including 265 new single family and duplex units to be constructed with a portion of the 2010A loan proceeds. The series 2010A loan was the fourth loan funded for the Project. The initial funding of $150 million and conveyance of 3,637 housing units at Ft. Lewis, subject to a 50 year ground lease, occurred on April 1, 2002. The second funding of $75 million occurred on June 7, 2004. The third funding occurred on Dec. 4, 2008 in the amount of $120 million at which point McChord Air Force Base was added to the Project and an additional 978 McChord units were conveyed. The new project out year plan projects that 1,115 of such conveyed units will be demolished, 3,161 units will be renovated, and 1,729 new units will be constructed. Upon completion of the development period now revised to Dec. 2018, the project will be comprised of 4,994 housing units with 104 previously renovated units scheduled for demolition in 2033 for a total end state unit count of 4,890 after 2033.

Additional information is available at www.fitchratings.com'

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by the Department of Defense report 'Base Closure and Realignment Report' published December 1988, April 1991, March 1993, March 1995 and May 2005.

Applicable Criteria and Related Research:

--'Rating Criteria for Military Housing', Sept.17, 2013;

--'Revenue-Supported Rating Criteria', June 16, 2014.

Applicable Criteria and Related Research:

Military Housing Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717957

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=877754

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.

Contacts:

Fitch Ratings, Inc.
Primary Analyst
Charles Giordano
Senior Director
+1-212-908-0607
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Maura McGuigan
Analyst
+1-212-908-0591
or
Committee Chairperson
Linda Friedman
Senior Director
+1-212-908-0727
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.