DBRS Confirms Thirteen and Downgrades Six Classes of GE Capital Commercial Mortgage Corp., Series 2004-C2

DBRS has today downgraded six classes of GE Commercial Mortgage Corporation, Series 2004-C2 (“GE 2004-C2”) Commercial Mortgage Pass-Through Certificates as follows:

Class J from BB (high) to BB
Class K from BB to B
Class L from BB (low) to B (low)
Class M from B (high) to CCC
Class N from B to CCC
Class O from B (low) to CCC

DBRS has also confirmed the other classes in the transaction as follows:

Class A-1A at AAA
Class A-2 at AAA
Class A-3 at AAA
Class A-4 at AAA
Class X-1 at AAA
Class X-2 at AAA
Class B at AA (high)
Class C at AA
Class D at A (high)
Class E at A
Class F at A (low)
Class G at BBB (high)
Class H at BBB (low)

The trends for all rated classes of the transaction are Stable.

The downgrades reflect a decrease in performance for a significant number of small loans in the transaction. Despite this, the transaction’s largest loans are performing very well and add stability to the pool.

Continental Communities – Rolling Hills MHC (Prospectus ID#50, 0.67% of the current pool balance) was originally scheduled to mature in February 2009. Difficulties surrounding the borrower’s ability to refinance resulted in the loan being transferred to the special servicer to negotiate a loan modification. The most recent appraisal of the property indicated a value of $6.8 million, down from $11.9 million at issuance. The loan was granted a maturity date extension to October 2010, with the option of a second, conditional extension to April 2011. The special servicer confirmed that the borrower was granted the second extension after a $300,000 equity infusion to secure the modification, with an additional $200,000 required by the time the loan matures. The loan is performing matured balloon, collateralized by a 312-pad manufactured housing community located in Massillon, Ohio and has an outstanding balance of $7,163,547. Finding a suitable refinance option for April 2011 could prove challenging given current market conditions and the repeat extensions.

Retail properties make up 43% of the current pool balance and include a number of under performing loans of concern. Stonebriar Plaza (Prospectus ID#7, 2.70% of the current pool balance) is a shopping center located in Frisco, Texas and anchored by a Toys “R” Us and Golfsmith International. One of the property’s largest anchors, Shoe Pavilion (17% of the NRA) vacated its space in Q4 2010 due to bankruptcy. Since then, occupancy at the subject has dropped to 67%, as of July 2010. The retail market surrounding the Dallas, Texas area is soft and tenant demand for low rental rates makes it a challenge to compete. In addition, the loan has a poor leverage point of $167.27 and a YE2009 DSCR of 0.41x.

Burnsville Marketplace (Prospectus ID#28, 1.25% of the current pool balance) has also suffered from losing a tenant due to bankruptcy when Circuit City (13% of the NRA) vacated its space in Q1 2009 with the company’s bankruptcy filing and subsequent liquidation of their stores. Occupancy at the property fell from 100% at YE2008 to 83% at YE2009 and the corresponding DSCR was 0.33x.

The pool has 78 months of seasoning and its total collateral has been reduced by 31.2%. There are 104 of the original 119 loans remaining in the pool and the current pool balance is $1,063,437,889.

There are currently 27 loans, including one of the original top ten, Stonebriar Plaza, on the servicer’s watchlist, representing 22.3% of the current pool balance. The weighted-average DSCR of loans on the servicer’s watchlist is 0.94x.

Seven loans, representing 5.37% of the current pool balance, are scheduled to mature in 2011, including one delinquent loan, Tanglewood Plaza (Prospectus ID#64, 0.89% of the current pool balance). The uncertainty of the market at this time raises concerns as to the ability of the borrower to refinance.

Overall, the pool collateral has exhibited satisfactory performance. There are 13 loans (10.16% of the current pool balance) that have fully defeased since issuance, and the AFR Bank of America Portfolio has defeased 18% of its trust balance since issuance. The weighted-average DSCR of the entire pool is 1.59x, with 87.8% of the pool reporting YE2009 financials.

The four largest loans in the pool (26.8% of the current pool balance) are performing exceptionally well, with a weighted-average DSCR of 2.34x. The combined weighted-average NCF change is 46.5%, showing a strong confidence in the cash flow at the properties.

The shadow-rating for Tyson’s Corner Center, Pacific Place, Lake Grove Plaza, and the AFR Bank of America Portfolio have all been confirmed. DBRS has today discontinued the shadow rating for Lake Grove Plaza.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.