Fitch Affirms MSCI 2006-HQ10

Fitch Ratings has affirmed 19 classes of Morgan Stanley Capital I Trust series 2006-HQ10 (MSCI 2006-HQ10) commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations reflect continued paydown and stable performance, since Fitch's last rating action. Fitch modeled losses of 6.4% of the remaining pool; expected losses on the original pool balance total 9.9%, including $84.8 million (5.4% of the original pool balance) in realized losses to date. Fitch has designated 36 loans (26.4% of the pool) as Fitch Loans of Concern, which includes two specially serviced assets (1.3% of the pool).

As of the November 2014 distribution date, the pool's aggregate principal balance has been reduced by 29.3% to $1.1 billion from $1.56 billion at issuance. Per the servicer reporting, seven loans (14.1% of the pool) are defeased. Interest shortfalls are currently affecting classes F through P.

The largest contributor to modeled losses is the AZ Office/Retail Portfolio, three cross-collateralized and cross-defaulted loans (6.5% of the pool) secured by a portfolio of two retail properties and one office property, totaling 335,653 square feet (sf), located in Scottsdale, AZ. These loans were previously transferred to special servicing in March 2012 for imminent default. The loans have since returned to the master servicer in February 2014 with no modifications to the loans.

Previously, portfolio cash flow had been declining since issuance due to an overall drop in portfolio occupancy; however, the portfolio has shown initial signs of recovery. As of the June 2014 rent roll, the combined portfolio occupancy was 80.5%, which is up from 76% in August 2013 but still down from 84.1% at issuance. Approximately 33% of the total portfolio square footage rolls prior to the end of 2016; the loan matures in October 2016. According to REIS, the Scottsdale office submarket reported a vacancy rate of 26.1% as of third-quarter 2014 (3Q'14). Additionally, the North Scottsdale-Paradise Valley retail submarket reported a vacancy rate of 9.8%, also as of 3Q'14.

The next largest contributor to expected losses is a specially-serviced loan (0.8% of the pool) secured by an unanchored 162,257 sf retail center located in Houston, TX. The loan recently transferred to the special servicer in October 2014 for imminent default. Prior to the transfer the loan had been on the servicer watchlist since 2009 as both occupancy and DSCR have steadily declined over the past few years. DSCR as of year-to-date (YTD) 2Q'14 was 0.38x, which is down from 0.55x as of year-end (YE) 2013. Occupancy as of 2Q'14 was 65.4%.

The third largest contributor to expected losses (1.7% of the pool) is secured by 66,830 sf of a 245,630 sf retail center located in West Sacramento, CA. The loan is on the servicer's watchlist due to DSCR. Specifically, the DSCR has remained below 1.0x over the past few years and was 0.90x as of YE 2013. In addition, per the September 2014 rent roll 36% of the collateral NRA rolls prior to the end of 2016; the loan matures in June 2016.

RATING SENSITIVITIES

The ratings on the investment grade classes are expected to remain stable due to sufficient credit enhancement and continued paydown. One specially serviced loan (previously 0.4% of the pool) has liquidated since the last review with recoveries better than expected. In addition, the concentration of specially serviced loans has declined to 1.3% of the pool (7.7% last review). However, there has been minimal change in the overall pool metrics since Fitch's last rating action. Distressed classes (those rated below 'B') may be subject to downgrades as losses are realized.

Fitch affirms the following classes as indicated:

--$66.2 million class A-1A at 'AAAsf'; Outlook Stable;

--$541.9 million class A-4 at 'AAAsf'; Outlook Stable;

--$70.2 million class A-4FL at 'AAAsf'; Outlook Stable;

--$63 million class A-4FX at 'AAAsf'; Outlook Stable;

--$149.1 million class A-M at 'AAsf'; Outlook Stable;

--$119.3 million class A-J at 'Bsf'; Outlook Stable;

--$31.7 million class B at 'CCCsf'; RE 100%;

--$16.8 million class C at 'CCCsf'; RE 10%;

--$22.4 million class D at 'Csf'; RE 0%;

--$16.8 million class E at 'Csf'; RE 0%;

--$6.5 million class F at 'Dsf'; RE 0%;

--$0 class G at 'Dsf'; RE 0%;

--$0 class H at 'Dsf'; RE 0%;

--$0 class J at 'Dsf'; RE 0%;

--$0 class K at 'Dsf'; RE 0%;

--$0 class L at 'Dsf'; RE 0%;

--$0 class M at 'Dsf'; RE 0%;

--$0 class N at 'Dsf'; RE 0%;

--$0 class O at 'Dsf'; RE 0%.

The class A-1, A-2 and A-3 certificates have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the ratings on the interest-only class X-1 and X-2 certificates.

Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:

Structured Finance >> CMBS >> Criteria Reports

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=935215

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