DBRS Confirms Nine and Upgrades Seven Classes of GE Commercial Mortgage Corporation, Series 2004-C2

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

-- Class D from AA (high) (sf) to AAA (sf)
-- Class E from AA (low) (sf) to AAA (sf)
-- Class F from A (sf) to AA (high) (sf)
-- Class G from BBB (high) (sf) to AA (low) (sf)
-- Class H from BBB (low) (sf) to A (sf)
-- Class J from BB (sf) to BBB (sf)
-- Class K from B (sf) to BB (low) (sf)

DBRS has also confirmed the ratings of six classes with Stable trends as follows:

-- Class A-4 at AAA (sf)
-- Class A-1A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class X-1 at AAA (sf)
-- Class L at B (low) (sf)

In addition, three classes were confirmed with no trends as follows:

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

The above ratings actions reflect the overall performance of the pool and the significant collateral reduction since issuance, as a result of loan amortization and loan repayment at maturity. Of the 199 original loans, 64 remain in the pool, as of the November 2013 remittance report, resulting in a collateral reduction of 62.2% since issuance. As part of this review, DBRS analyzed the largest 15 loans, the loans on the servicer’s watchlist and the specially serviced loans. There are currently six specially serviced loans, which represent 9.8% of the current pool balance and the 21 loans (22.4% of the current pool balance) on the servicer’s watchlist. Of the 21 loans on the servicer’s watchlist, 13 loans, representing 9.1% of the current pool balance, are on the servicer’s watchlist for their upcoming maturity dates, as opposed to performance issues.

The largest loan in special servicing is Prospectus ID #8, Continental Centre (4.5% of the current pool balance) and is secured by a 26-story, class B office property in downtown Columbus, Ohio. The loan was transferred to the special servicer in December 2012 for imminent default due to cash flow issues at the property. AT&T once occupied the entire building, but has gradually downsized over time and now only occupies 33.3% of the NRA on a lease through December 2017. AT&T’s diminishing presence at the property has negatively impacted the property level cash flow, and as such, the debt service coverage ratio (DSCR) has decreased from 1.29 times (x) at issuance to 1.05x at YE2013. According to the special servicer, AT&T previously offered to buy out the remaining portion of its lease, including a $10 million penalty, but ultimately withdrew their offer. The special servicer and the borrower are currently in the process of discussing a potential loan modification. A May 2013 appraisal valued the property at $14.2 million, down from $35 million at issuance, and lower than the outstanding principal balance of $23.3 million. Further, the appraisal reported the property was in Average to Below-Average condition for properties of its age and location and noted $4.4 million of deferred maintenance. DBRS expects a loss with the resolution of this loan.

The largest loan on the servicer’s watchlist is Prospectus ID #7, Stonebriar Plaza, representing 5.2% of the current pool balance and is secured by a shadow-anchored retail center in Frisco, Texas. Performance started to decline late in 2008 after several tenants vacated the property, causing the occupancy rate to drop as low as 59.0% in 2009. Occupancy began to rebound in 2010 with the signing of four tenants increasing occupancy to 79.4% in April 2011. Further leasing activity continued into 2012 and 2013 with the signing of five tenants, and the property is 93.3% occupied according to the August 2013 rent roll. The DSCR increased from 0.57x at YE2010 to 0.79x at YE2012, but still remains well below the issuer’s underwritten level of 1.29x.

The largest 15 loans are performing quite well, with a weighted-average DSCR of 1.80x and a weighted-average debt yield of 13.8%, excluding defeasance. Additionally, the transaction benefits from a significant concentration of defeasance collateral, with 16 loans representing 22.9% of the current pool balance being fully defeased. Since issuance, four loans have liquidated from the trust, resulting in realized losses of $1.3 million, all of which have been contained to the unrated P Class.

The transactions’ maturity profile is highly concentrated in the near term, with 58 loans representing 95.2% of the pool maturing in the next six months. Of those 58 loans, 28 (30.2% of the pool) have maturity dates in the next three months. Despite the concentration of loan maturities, the metrics are favorable, as those 58 loans report a weighted–average exit debt yield of 13.2%, based on the most recent reported cash flows.

There are two loans shadow-rated investment grade by DBRS remaining in the pool, representing 19.6% 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, specially serviced loans and loans on the servicer’s watchlist. The November 2013 Monthly CMBS 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 American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.