DBRS Places 1 Class of Banc of America Re-REMIC Trust 2009-UBER2 Under Review, Negative Implications

DBRS has today placed the following class of Banc of America Re-REMIC Trust 2009-UBER2 Commercial Mortgage Pass-Through Certificates Under Review with Negative Implications:

-- Class A-4B-7

This transaction is collateralized by the beneficial interests in nine super-senior commercial mortgage-backed pass-through certificates from nine underlying transactions that were securitized between 2007 and 2008.

This rating action is based on the outlook for the largest loan (The Pier at Caesar’s, Prospectus ID #1) in one of the underlying transactions, MSCI 2007-HQ13, which contributed $16,575,000 of the A-3 bond to the Class A-4A-B pooled bond and the A-4B-7 non-pooled bond in the Re-REMIC structure as of the March 2013 remittance. The remittance report shows interest shortfalls outstanding to both the A-4A-B and A-4B-7 bonds in the Re-REMIC as of March 2013, but as the terms of the waterfall cap interest payments at available interest, DBRS did not place these classes on Interest in Arrears with this rating action, in accordance with DBRS methodologies.

The Pier at Caesar’s is a retail center located along the Boardwalk in front of the Caesars Atlantic City casino and hotel. The property was constructed in 2004 and comprises approximately 300,000 sf of space. At issuance, the property was valued as-is at $187.5 million, with a stabilized value of $210 million. The trust loan in the amount of $80.5 million implied an as-is LTV at issuance of 42% and the loan was interest only for the entire ten-year loan term. At issuance, the property was approximately 75% occupied, with no single tenant occupying more than 4% of the NRA. Although occupancy improved over the years following issuance, the property suffered from low sales and in 2009, the borrower reported that many tenants were paying percentage rents in lieu of base rent and requested relief from the special servicer. The loan transferred to special servicing in October 2009 and the trust acquired title to the property in 2011.

Since the transfer to special servicing, the value of the property has declined precipitously and the most recent value from January 2013 shows a value of just $11 million for the property. The special servicer reports that the building is in need of a number of capital repairs and cites major market difficulty in the wake of Hurricane Sandy, which dealt significant damage to the area in late 2012 as contributors to the extremely low value. Given the low property value and the outstanding advances at March 2013 of approximately $9.0 million, it is likely that the liquidation of the asset will result in at least a 100% loss to the trust. With the March 2013 remittance, the servicer applied an appraisal reduction of $80.04 million, which resulted in interest shortfalls rising all the way up through the A-2 bond. It is unclear at this time when those shortfalls are expected to be repaid.

As a result of these developments, DBRS has placed the A-4B-7 bond, which is non-pooled with payments directly corresponding to the performance of the underlying A-3 certificate in the MSC 2007-HQ13 transaction, Under Review with Negative Implications. Although the A-3 bond also contributes to the pooled A-4A-B bond, DBRS believes the pooled nature of that bond with a total of five contributing certificates insulates it from significant credit erosion as related to these developments. As such, no action was taken on that bond at this time.

DBRS will conduct a full surveillance review of the Re-REMIC transaction within the next three months to determine the full impact of the latest development with The Pier at Caesar’s loan and will report those findings and any corresponding rating actions at the time of the review.

Notes: All figures are in U.S. dollars unless otherwise noted.
These ratings are endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance (May 2011), which can be found on our website under Methodologies.