DBRS Confirms the Ratings of ML-CFC Commercial Mortgage Trust, Series 2006-1

DBRS has today confirmed all classes of ML-CFC Commercial Mortgage Trust, Series 2006-1 as follows:

Classes A-1A, A2, A3, A-3B, A-3FL, A-4, A-SB, AM and X, at AAA (sf)
Classes AN-FL and AJ at A (high) (sf)
Class B at BBB (sf)
Class C at BBB (low) (sf)
Class D at BB (sf)
Class E at B (sf)
Classes F and G at CCC (sf)
Classes H, J, K, L, M, N, and P at C (sf)

In addition, DBRS recognizes that Classes G through P having Interest in Arrears. All trends are Stable. DBRS also confirmed the shadow-rating for Southern California Ground Lease Portfolio (Prospectus ID#42, 0.66% of the current pool balance) at ‘A’.

Three specially serviced loans continue to remain points of concern regarding projected loss to the trust.

Inglewood Park (Prospectus ID#11, 1.75% of the pool) is the third largest loan in special servicing. Collateral for this loan consists of six office/flex buildings located in Largo, Maryland, approximately ten miles east of Washington, D.C. The property’s performance has been weak since issuance and an April 2011 rent roll indicated the property to be 50% occupied. The loan was structured with a $5.2 million holdback that was to be released upon achievement of certain performance hurdles. These hurdles were never met, and the loan balance was paid down by the amount of the hold back in early 2010. In addition, the lender approved the December 2010 sale of one of the original seven buildings securing the loan at issuance. The $5.3 million in proceeds resulting from this sale went to pay down the loan’s outstanding balance. A receiver is in place at the property to handle management, leasing, property improvement, and possibly position the asset for sale. DBRS anticipates significant losses associated with this loan, especially given the fact that total advances outstanding exceed $7.9 million.

Colonial Mall Glynn Place (Prospectus ID#18, 1.17% of the current pool balance) is secured by a regional mall located in coastal Georgia in the city of Brunswick. The property featured a Steve & Barry’s store at issuance that served as collateral for the loan and contributed more than 10% of the total property income. Steve & Barry’s closed the store at the subject property when the company liquidated, and the space remains vacant. As of June 2010, the asset was 51% occupied. The loan was scheduled to mature in November 2010, and is now considered non-performing matured balloon. A receiver was appointed in October 2010 with the intent to sell the property. DBRS will continue to monitor this loan.

U Stor It Self Storage Portfolio (Prospectus ID#20, 1.16% of the current pool balance) is collateralized by four self-storage properties located in the Chicago area. This loan was transferred to the special servicer after the borrower indicated that the properties were operating on negative cash flow. At issuance, an up-front reserve was held because of the low occupancy of two of the properties. It appears that $1.6 million of this reserve is still held by the lender and could ultimately be used to pay down the balance of the loan; however, the total outstanding advances to the loan exceed $3 million, which is more than one year’s debt service. The special servicer is reportedly pursuing a note sale. DBRS will continue to follow the resolution of this loan.

Since the last review in June 2010, two of the top ten loans, based on current balance, Prince Georges Center II (Prospectus ID#10, 2.31% of the current pool balance) and East Thunderbird Square (Prospectus ID#12, 1.91% of the current pool balance), have transferred to the special servicer.

Prince Georges Center is secured by an office property in Hyattsville, Maryland. The building is 100% occupied by a government tenant. Payment to reserve funds was due to increase when the borrower failed to secure the tenant’s renewal by December 2010, and the loan was transferred to special servicing in March 2011 when the reserve was not adequately funded by the borrower. The borrower continues to pay monthly debt service; however, the cash is being held while the borrower negotiates a lease renewal with the existing tenant, whose lease is scheduled to expire in September 2012.

East Thunderbird Square is secured by an unanchored retail property in Scottsdale, Arizona. The loan was transferred to the special servicer in April 2011 for payment default. The borrower has been able to increase occupancy at the property from 47% at YE2010 to 64% as of May 2011. A $5.6 million letter of credit has been cashed and is being held by the Master Servicer. Leverage at the property, on a per square foot basis, is considered reasonable at $205.

The remaining top-ten loans are performing well with a weighted-average DSCR of 1.62x. Some of these loans have experienced significant improvement to cash flow since issuance. Two crossed-collateralized loans secured by hotels, Ashford Hotel Portfolio 2 (Prospectus ID#4, 6.55% of the current pool balance) and Ashford Hotel Portfolio 3 (Prospectus ID#5, 5.43% of the current pool balance), are exhibiting stable performance. These two top-ten loans are performing with a weighted-average YE2010 DSCR of 1.50x, up from 1.40x at YE2009, which is considered very strong given the recent economic instability of the hospitality industry in the current market. The transaction’s remaining shadow-rated loan, Southern California Ground Lease Portfolio (Prospectus ID#42, 0.66% of the current pool balance) has experienced a 40% increase to cash flow since issuance.

As a part of its review, DBRS analyzed the servicer’s watchlist, the specially serviced loans, the top fifteen loans and one shadow rated loan. Combined, these loans represent approximately 67% of the pool balance.

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

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