DBRS Confirms Fourteen and Upgrades Three Classes of GE Commercial Mortgage Corporation, Series 2004-C2

DBRS has today upgraded three classes of the GE Commercial Mortgage Corporation, Series 2004-C2 Commercial Mortgage Pass-Through Certificates as follows:

Class B from AA (high) (sf) to AAA (sf)
Class C from AA (sf) to AA (high) (sf)
Class D from A (high) (sf) to AA (sf)

The trends for the above classes are Stable.

In addition 11 classes were confirmed as follows with Stable trends:

Class A-3 at AAA (sf)
Class A-4 at AAA (sf)
Class A-1A at AAA (sf)
Class E at A (sf)
Class F at A (low) (sf)
Class G at BBB (high) (sf)
Class H at BBB (low) (sf)
Class J at BB (sf)
Class K at B (sf)
Class L at B (low) (sf)
Class X-1 at AAA (sf)

The following class were also confirmed :

Class M at CCC (sf)
Class N at CCC (sf)
Class O at CCC (sf)

These rating actions reflect the overall performance of the pool, which has shown a collateral reduction of 28.50% since issuance, with 11 loans, representing 8.23% of the pool, defeased as of the October 2011 remittance report. The pool has shown a weighted-average NCF growth of 13.76% since issuance, and had a weighted-average DSCR of 1.64x as of the most recent year-end figures for each of the loans. The performance of the largest 16 loans in the pool is quite strong, with a weighted-average NCF growth of 29.49% since issuance for the 15 loans reporting YE2010 figures and a weighted-average DSCR (WADSCR) of 1.87x.

There are 23 loans on the servicer’s watchlist, representing 20.04% of the outstanding pool balance. Of these loans, eight individually represent more than 1.0% of the pool balance, three of which are in the top fifteen loans in the transaction. The weighted-average NCF decline since issuance for the loans on the watchlist is 23.23%, with a weighted-average DSCR of 0.98x, as of the most recent year-end information available for these loans.

There is one loan in special servicing, representing 0.55% of the current pool balance, Prospectus ID#64, Tanglewood Plaza. This loan is secured by a 49,000 sf retail property located in Naples, Florida, approximately 30 miles south of Cape Coral. The immediate vicinity includes similar retail development and several hotel properties. The loan was transferred to the special servicer in December 2010 when the borrower requested relief due to declining cash flow at the property. At YE2009, the occupancy was at 86% and the DSCR was at 0.89x; the special servicer reports that the March 2011 occupancy was 96% with the YE2010 DSCR up slightly to 0.91x.

The loan is due for the April 2011 payment and all scheduled payments due thereafter. The current loan per square foot is $113. A February 2011 appraisal valued the property at $5 million, just below the current outstanding balance of $5.44 million. Previous negotiations with the borrower for forbearance have fallen through and the special servicer reports that a foreclosure has been filed. DBRS anticipates a loss to the trust as a result of the liquidation of this loan that could be in excess of $1.9 million as the asset is located in a relatively remote location and has experienced difficulty in recent years maintaining rental rates consistent with those in place at issuance.

The largest loan on the servicer’s watchlist is Prospectus ID#7, Stonebriar Plaza, representing 2.79% of the current pool balance. This loan is secured by a retail center located 25 miles north of Dallas in Frisco, Texas, just off of Highway 121 near the Stonebriar Center, a 1.6 million sf regional mall anchored by Dillard's, Macy's, Nordstrom, and a 24-screen AMC movie theater. The largest tenant at the subject property is Toys "R" Us, with 27% of the NRA on a lease through 2014. The loan is on the servicer's watchlist for a low DSCR and occupancy declines since issuance. At YE2010, the A-note DSCR was at 0.57x and the occupancy was at 66.7%..

The occupancy has suffered since losing two large tenants to bankruptcy: Shoe Pavilion in 2008, which occupied 17% of the NRA, and Ultimate Electronics in 2010, which occupied 18% of the NRA. The property occupancy improved with the signing of Sun & Ski Sports in June 2010 for 10% of the NRA on a ten-year lease. The property was 79.4% occupied as of the April 2011 rent roll. The servicer reported in October 2011 thatCasual Male was recently signed, and will bring the property occupancy to 87.1% when the store opens in early 2012. Reis reports the average vacancy rate for community shopping centers built between 2000 and 2009 in this submarket to be 9.0% as of Q3 2011; the overall vacancy rate for the submarket for the period is 10.9% but is projected to increase to 11.2% by YE2012 due to a 5.4% increase in market inventory in 2012. The current trust loan leverage of $165 psf is considered high given the current market conditions. DBRS will continue to monitor the loan closely for developments.

Another loan on the servicer’s watchlist is Prospectus ID#19, Knox Park Village Retail, representing 1.68% of the current pool balance. The loan is on the watchlist for a low DSCR, which was at 0.71x at YE2009 and 0.77x at YE2010. Theproperty has suffered occupancy issues dating back to 2008, when it fell to 79% and again to 63% at YE2009. The April 2011 rent roll shows an occupancy rate of 78.6%; however, although a new tenant took occupancy in Q2 2011 for approximately 5.7% of the NRA, the property's largest tenant with approximately 10% of the NRA vacated upon lease expiration at May 2011, and the property occupancy was reportedly 73.8% at the time of the June 2011 servicer's site inspection.

The loan is secured by a mixed-use low-rise property with approximately 50,000 sf of office space and 30,000 sf of retail. The retail component is well-occupied, with 100% of the units leased as of the April 2011 rent roll; tenants include Pei Wei Asian Diner, Sport Clips and Jersey Mike's Subs. The subject, constructed in 2003, is well-located in north Dallas, on the west side of the North Central Expressway, near Highland Park. According to Reis, the Oaklawn submarket had average asking rents for office space of $20 psf with an office vacancy rate of 20.7% at Q3 2011, down from 21.4% at Q2 2011. The submarket's retail rents average approximately $35 psf for retail space constructed between 2000 and 2009. Asking rents for the subject's vacant office space are between $15 and $18 psf, according to the servicer, with the property's retail rents averaging approximately $38 psf as of the April 2011 rent roll. The current loan per square foot is $207 and is considered moderate for this property given its submarket and historical performance.

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, including the loans on the servicer’s watchlist and in special servicing.

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

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