DBRS Confirms 17 Classes of Schooner Trust, Series 2005-3

DBRS has today confirmed the ratings of 17 classes of Schooner Trust Commercial Mortgage Pass-Through Certificates, Series 2005-3 as follows:

Class A-1 at AAA (sf)
Class A-2 at AAA (sf)
Class XP-1 at AAA (sf)
Class XC-1 at AAA (sf)
Class XP-2 at AAA (sf)
Class XC-2 at AAA (sf)
Class B to AA (high) (sf)
Class C to AA (low) (sf)
Class D-1 to BBB (high) (sf)
Class D-2 to BBB (high) (sf)
Class E to BBB (sf)
Class F to BBB (low) (sf)
Class G to BB (high) (sf)
Class H at BB (low) (sf)
Class J at B (high) (sf)
Class K at B (sf)
Class L at B (low) (sf)

In addition to the ratings confirmations, DBRS has changed the trend on Class J, Class K, and Class L from stable to negative to appropriately reflect the unique risks associated with the 71 Rexdale Boulevard and the Corner Brook Plaza loans, which are each discussed in detail below.

The ratings confirmations reflect the increased credit enhancement from a collateral reduction of approximately 19% since issuance. Eleven loans have paid out of the pool since issuance. The weighted-average debt service coverage ratio remains stable at 1.61x.

At issuance, DBRS shadow-rated seven loans, 5.21% of the current pool balance, as investment-grade. DBRS has today confirmed that the performance of these individual loans remain consistent with investment-grade loan characteristics.

There are currently four loans on the servicer’s watchlist, representing 1.58% of the current pool balance. These loans remain current but are reporting performance issues and have been placed on the servicer’s watchlist. One of these loans is highlighted below.

The White Oak Industrial loan (0.75% of current pool balance) is secured by a flex industrial/office property in London, Ontario; approximately 1 km north of the Hwy 401 and 402 interchange. The loan is on the servicer’s watchlist due to a consistently declining occupancy rate, which was 56% as of May 2011. While the drop in the occupancy rate is a concern, the YE2010 DSCR was strong at 1.39x and the leverage point is low at $13 psf.

DBRS has added one loan, 71 Rexdale Boulevard (3.32% of the current pool balance) to the DBRS HotList because the property is now vacant. The previous sole tenant exercised its lease termination option in July 2011. The subject itself is a single use, cold storage facility, and although the servicer has reported that the borrower has received interest from prospective tenants, it may be difficult to sign a new tenant given the specific use of the property and the specialty build out. The YE2010 DSCR was 1.52x, but it is anticipated that the DSCR will decrease now that the property is vacant. DBRS will continue to monitor the loan closely.

DBRS continues to closely monitor the Corner Brook Plaza loan (5.89% of the current pool balance), which is secured by a regional shopping mall in Corner Brook, Newfoundland. There is concern with the subject’s competitiveness in what appears to be an overbuilt retail market. The total trade area has a population of approximately 77,000 and there are two competing malls, as well as strip retail centre, which contains Wal-Mart, Canadian Tire, and Marks Work Warehouse, among other national tenants. The overbuilding of retail in this trade area, coupled with the fact that the local economy in Corner Brook is struggling is a concern. According to StatCan, the Corner Brook unemployment rate was 13.7%, well above the national average of 7.3%. While the loan has performed well over the term and had a YE2010 DSCR of 1.58x with a 97% occupancy rate, the sustainability of the performance in a stressed market could be challenging. DBRS will continue to monitor this loan closely.

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.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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