DBRS Upgrades Four Classes of GECMC, Series 2005-C1, Confirms Nine Others

DBRS has today upgraded the ratings of four classes of GE Commercial Mortgage Corporation, Series 2005-C1, as follows:

-- Class A-J to A (high) (sf) from A (sf)
-- Class B to A (high) (sf) from A (sf)
-- Class C to A (high) (sf) from A (sf)
-- Class D to BBB (sf) from BBB (low) (sf)

DBRS has also confirmed the ratings on the remaining classes in the transaction. Trends of all rated classes are Stable, with the exception of Class F and Class G, which have no trends.

The rating upgrades primarily reflect the repayment of interest shortfalls to Class A-J and Class B, as well as the increased credit enhancement to the transaction overall. DBRS originally downgraded Class A-J and Class B in January 2013 as a result of interest shortfalls to these classes after the borrower for the Washington Mutual Buildings loan (Prospectus ID#9) won its countersuit against the Trust. The Trust was forced to reimburse the borrower’s legal fees and other expenses, totaling over $5.1 million, which resulted in interest shortfalls reaching up to Class A-J. Correspondingly, DBRS downgraded Classes A-J and B, given the lack of tolerance for interest shortfalls at each class’s respective rating at that time.

As the transaction began to repay the previously shorted interest to those classes, DBRS placed the ratings Under Review with Positive Implications. With this rating action, DBRS has upgraded these classes, as all previously shorted interest has been repaid to the upgraded bond classes. While the credit enhancement to each class has increased since issuance, the ratings are constrained at A (high) (sf), given the potential for future interest shortfalls (see below discussion of Lakeside Mall) and the lack of tolerance for interest shortfalls with respect to DBRS ratings above A (high) (sf).

As of the November 2013 remittance report, there has been collateral reduction of approximately 46.7% since issuance, with 40 loans having paid out of the pool at maturity or liquidated from the Trust. There are currently 87 loans remaining in the transaction. The transaction benefits from defeasance collateral as ten loans, representing 10.7% of the current pool balance, are fully defeased. The largest 15 loans in the transaction, excluding defeasance, continue to exhibit stable performance, with a weighted-average debt service coverage ratio and weighted-average debt yield of 1.59 times (x) and 10.7%, respectively. In the next 12 months, 15 loans, representing 10.0% of the current pool balance, are scheduled to mature. Excluding defeasance, these loans have a weighted-average exit debt yield of 14.2%.

As part of its review, DBRS analyzed the top 15 loans, loans maturing in the next 12 months, loans in special servicing and loans on the servicer’s watchlist, comprising approximately 70.0% of the current pool balance. There are currently two loans in special servicing and 15 loans on the servicer’s watchlist, which represent 2.1% and 19.1% of the current pool balance, respectively. DBRS considered the current performance of these loans in its analysis, which included assigning an elevated probability of default associated with the latest reported cash flows to the extent it was warranted.

The largest loan in special servicing is Skytop Pavilion (Prospectus ID#48), which is secured by a grocery-anchored retail property in Cincinnati, Ohio. The loan transferred to special servicing in May 2012 due to imminent default. The special servicer entered the foreclosure sale in September 2013. As of the July 2013 rent roll, the property was 65.3% occupied, with the lease for the grocery anchor, Bigg’s Grocer, not expiring until February 2020; however, there remains a 27,000 sf vacancy that was formerly leased by a local gym. The property received an updated appraisal in May 2013, which valued the property at $6.9 million. While this value is approximately $600,000 greater than the June 2012 appraised value, it is well below the current loan balance of $13.3 million. DBRS expects a loss 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. The collateral consists of the in-line space at the mall, as well as the Macy’s Men’s & Home anchor pad. Other anchors at the mall include Macy’s, JC Penney, Lord & Taylor and Sears. The loan is on the servicer’s watchlist for a low debt service coverage ratio, which was 1.25x at YE2012. 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, annual debt service payments increased by approximately $530,000 for three years, which places further stress on cash flow. As of the June 2013 rent roll, the mall was 92.8% occupied, with collateral occupancy at 82.4%. The mall reported sales of $345 psf for in-line tenants occupying less than 10,000 sf and $265 psf for in-line tenants occupying greater than 10,000 sf, according to the trailing 12-month sales report as of September 2013. As a result of the loan previously being in special servicing and its subsequent modification, the special servicer is entitled to a workout fee totaling 1.0% of the loan balance at the time of loan repayment. The payment of this workout fee will reduce funds available to the Trust. Given the loan’s extended maturity date and the transaction’s waterfall (per transaction documents); this may result in a principal loss that would be contained to a class where DBRS is already expecting losses. However, if the loan were to prepay in advance of its extended maturity date, the fee would cause interest shortfalls up the capital stack, likely impacting as high as the Class A-J certificates, given the size of the loan. Although it is likely that any shorted interest to the Class A-J and Class B certificates would be repaid within one remittance period, DBRS has no tolerance for interest shortfalls above the A (high) (sf) rating.

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 November 2013 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 American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.