DBRS Places Eight Classes on Under Review – Developing in Schooner Trust, Series 2004-CF2

DBRS has today placed Classes D through L on Under Review – Developing.

The rating actions reflect uncertainty surrounding the upcoming maturity of the second-largest loan in the pool, DaimlerChrysler Building (Prospectus ID#3, 9.26% of the current pool balance) which matures on September 1, 2011. The loan is secured by a 195,952 sf Class-A office building in Windsor, Ontario. As of an April 2011 rent roll, the property is 90% occupied, primarily by DaimlerChrysler, which leases 67% of the NRA. The City of Windsor owns the land upon which the property is built and collects ground rent in addition to having a lease for 14% of the NRA. The property was 100% occupied at issuance with a corresponding DSCR of 1.57x. As of YE2009, the DSCR had improved to 1.79x. DBRS does not have updated financials representative of YE2010 performance. The property’s location relative to the U.S. auto manufacturer’s headquarters in Detroit raises concern regarding the loan’s ability to refinance, as DBRS recognizes the affect that the downtown in the auto industry and U.S. economy has had in this area. The servicer has not yet received a signed commitment from the borrower indicating new financing has been secured. The loan’s outstanding balance, as of the July 2011 remittance report, is $35,959,763, reflecting a loan per square foot of $132.

DBRS considers the 14.1% exit debt yield to be consistent with other office properties that have been able to successfully refinance. However, this debt yield is based on a YE2009 net cash flow, and there is no certainty that the loan will be repaid upon its maturity date. Despite the modest debt yield, other factors such as the asset’s location, in what is considered to be a volatile market, and significant exposure to a tenant in the auto industry may present additional hurdles for the borrower.

DBRS’ decision to place certain classes of the transaction Under Review – Developing stems from its opinion that the successful refinance of this loan would have a positive impact on the ratings. However, because of the loan’s size as the second largest loan in the pool, any problems experienced at the property or the loan following a maturity default could negatively impact the ratings. DBRS expects to have more information on this loan’s refinance status in the coming months and will be able to make an informed decision on the ratings of the classes placed Under Review at that time.

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.