DBRS Places One Class and Maintains One Class Under Review with Negative Implications of GECMC, Series 2005-C1, Confirms 11 Others

DBRS has today placed the rating of one class of GE Commercial Mortgage Corporation, Series 2005-C1, Under Review with Negative Implications as follows:

-- Class A-J, rated AAA (sf)

Additionally, DBRS has maintained its rating of Class B in the transaction as follows:

-- Class B, rated AA (low) (sf)

DBRS has also confirmed the ratings on the remaining classes in the transaction. Trends of all ratings are Stable, except for Class A-J and Class B, which have no trends.

Class A-J and Class B were placed and maintained at Under Review with Negative Implications, respectively, as a result of the most recent interest shortfalls, which have now risen up the bond stack to Class A-J. The shortfalls were triggered this month after the borrower for the Washington Mutual Buildings loan (Prospectus ID#9) won its countersuit against the Trust, which forced the Trust to reimburse the borrower’s legal fees and other expenses, to a total of $5.1 million. The subject loan was liquidated from the Trust in August 2012, though litigation between the two parties was still outstanding at the time. Transaction documents allow for reimbursements of advances over multiple periods; however, the advance reimbursement in December, as processed by the Master Servicer and the Trustee, caused interest shortfalls up to and including Class A-J. According to the Master Servicer, interest shortfalls to these classes are expected to be recovered. DBRS views this as an event associated with the liquidation of one loan and, from discussions with transaction parties, expects the shortfalls to be recovered. However, the classes were placed Under Review with Negative Implications as a result of the ratings level being hit with interest shortfalls. DBRS expects to learn more about the expected recovery of the interest shortfalls prior to the next remittance, at which time it will make a decision on the appropriate rating action for Classes A-J and B.

The rating confirmations reflect the increased credit enhancement from a collateral reduction of approximately 42.2% since issuance. As of the December 2012 remittance report, 37 loans have paid out of the pool or been liquidated since issuance, leaving 90 loans remaining in the transaction. The weighted-average debt service coverage ratio (DSCR) and weighted-average debt yield remain stable at 1.44 times (x) and 70.8%, respectively.

There are currently four loans in special servicing and 18 loans on the servicer’s watchlist, which represent 5.6% and 19.1% of the current pool balance, respectively.

The largest loan in special servicing is Oak Park Office Center (Prospectus ID#25), which is secured by a Class A, 173,000 sf office building in the Oak Park at Westchase office park in Houston, Texas. The loan transferred to special servicing in April 2010 due to imminent default and has been Real Estate Owned (REO) since May 2011. According to the September 2012 rent roll, the property is 100% occupied and has no tenant rollover until January 2014. The property received an updated appraisal in August 2012, which valued the property at $26.5 million, compared to a current loan balance of $20.1 million. DBRS expects a positive outcome with the resolution of this loan.

The largest loan on the servicer’s watchlist is Lakeside Mall (Prospectus ID#1), which is secured by 650,000 sf of a 1.5 million sf regional mall in Sterling Heights, Michigan. Collateral consists of the in-line space at the mall, as well as the Macy’s Men & Home anchor pad. Other anchors at the mall include Macy’s, JC Penney, Lord & Taylor and Sears. The loan is on the watchlist for a low DSCR, which was 1.19x at YE2011. This loan was previously modified when its sponsor, General Growth Properties, Inc. (GGP), filed for bankruptcy in 2009. Terms of the modification included a maturity extension until June 2016 and step increases in debt service. Beginning in January 2013, the debt service payment will increase by approximately $600,000 annually for three years, which will place further stress on cash flow. The mall continues to remain current on its obligations, posting sales of $351 psf for in-line tenants occupying less than 10,000 sf and $278 psf for in-line tenants occupying greater than 10,000 sf, according to the trailing 12-month sales report as of September 2012.

At issuance, DBRS shadow-rated one loan, representing 2.5% of the current pool balance, as investment grade. DBRS has today confirmed that the performance of this individual loan remains consistent with investment-grade loan characteristics.

As part of its review, DBRS analyzed the top 15 loans, loans in special servicing, loans on the servicer’s watchlist and the one shadow-rated loan, which comprise approximately 64.5% of the current pool balance.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction including details on the largest loans in the pool, the loans in special servicing and the loans on the servicer’s watchlist. The December 2012 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North America Surveillance Methodology (November 2012), which can be found on our website under Methodologies.