DBRS Confirms All Classes of Real Estate Liquidity Trust, Series 2004-1

DBRS has today confirmed the ratings of Real Estate Liquidity Trust, Series 2004-1 as follows:

Classes A-1, A2, B and X at AAA (sf)
Class C at AA (sf)
Class D-1 at A (sf)
Class D-2 at A (sf)
Class E-1 at A (low) (sf)
Class E-2 at A (low) (sf)
Class F at BBB (sf)
Class G at BBB (low) (sf)
Class H at BB (sf)
Class J at B (high) (sf)
Class K at B (sf)
Class L at B (low) (sf)

All trends for the rated classes of this transaction are Stable.

DBRS does not rate the $3,807,747 first loss piece, Class M.

The rating confirmations reflect a strong outlook for the pool, with the successful maturity of 26 loans since issuance. There are eight defeased loans, representing 22.7% of the current pool balance. Overall, financial performance for the remaining collateral is stable, with a weighted-average debt service coverage ratio (WADSCR) of 1.85x and a weighted-average loan-to-value (WALTV) of 51.6%. All 47 of the loans remaining in the pool are current. The pool collateral has been reduced by 44.9% since issuance, with the current pool balance at approximately $220.6 million.

There are four loans on the servicer’s watchlist, representing 5.51% of the current pool balance. These loans are discussed in detail below.

8655 Foucher St/600-670 Cremazie Blvd (Prospectus ID#27, 2.03% of current pool balance) is a 117-unit multifamily property built in 1964 and located in Montreal. This loan was placed on the watchlist in July 2010 because of a low DSCR, resulting from a decline in rental revenue. According to the borrower, rental rates were lowered in an effort to remain competitive in the market. The servicer was not able to make contact with management personnel for a December 2010 site inspection; however, a tour of the building’s exterior found the property to be in Good condition. The DSCR and occupancy, as of YE2009, are 1.01x and 96%, respectively, which, although an improvement over the YE2008 DSCR of 0.92x, indicates a 25% decline to net cash flow since issuance.

Victoria House (Prospectus ID#35, 1.68% of current pool balance) is an independent living facility built in 2001 and located in Orillia, Ontario. The NCF has declined at the property, and YE2009 financials indicate a DSCR of 1.05x, down from 1.31x at issuance. The decline has been attributed to increased general and administrative expenses, as well as the normalization of capital expenditures to 4% of the Estimated Gross Income (EGI). A September 2010 servicer site inspection noted the property to be well-maintained and in good overall condition, with no deferred maintenance items. According to the same document, the property was 100% occupied at the time of inspection.

Prospectus ID#46 (1.21% of current pool balance) is a privacy-protected loan secured by a 66-unit multifamily property located in Ontario. The loan was placed on the watchlist in July 2010 for a low DSCR, caused by a decline in revenue. Competition in the area includes recently constructed high-rise condominiums, according to a September 2010 servicer site inspection. The inspector assigned the property a rating of Poor. Major deferred maintenance issues noted include balcony safety issues, steel fences and entrances to underground parking garage in need of repair or replacement, and graffiti throughout the property. The loan remains current, and is 100% recourse to the borrower.

Prospectus ID# 69 (0.59% of the current pool balance) is a privacy-protected loan secured by an industrial property located in British Columbia. The loan had been on the watchlist for a low DSCR. As of YE2010 the DSCR is 1.65x and the property is 92% occupied. More recently, the loan remained on the watchlist for tenant expirations. The tenants in question have reportedly extended their respective leases, and the servicer has confirmed that this loan will be removed from the watchlist.

DBRS maintains two shadow ratings in this transaction. The shadow rated loans are Sheraton Cavalier (Prospectus ID#2, 8.19% of the current pool balance) at AA (low) and Baywood Centre (Prospectus ID#9, 3.84% of the current pool balance) at AA (high). The loans have continued to exhibit stable performance and, as such, DBRS has confirmed the shadow ratings.

DBRS continues to monitor this transaction on a monthly basis in the Monthly CMBS Surveillance Report, which can provide more detailed information on the individual loans in the pool.

Note:
All figures are in Canadian 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.