DBRS Downgrades Three Classes of WBCMT, Series 2004-C15

DBRS has today downgraded three classes in the Wachovia Bank Commercial Mortgage Trust, Series 2004-C15 transaction as follows:

-- Class G to BB (high) (sf) from BBB (sf)
-- Class H to CCC (sf) from B (sf)
-- Class J to C (sf) from CCC (sf)

In addition, DBRS has confirmed Class A-1A through Class F and Class K through Class M, including the notional Class X-C. DBRS has also upgraded the ratings of the rake bonds associated with the non-pooled 175 West Jackson B-note to AAA (sf), as the whole loan has been fully defeased. All trends are Stable, with the exception of Class H through Class M, which have ratings that do not carry trends.

The downgrade to Class J is a result of increased projected losses associated with two loans in special servicing. Furthermore, the estimated losses incurred by the trust, with respect to these two loans, will erode the credit enhancement to a number of the lower-rated classes, prompting the rating downgrades on Class G and Class H.

Since issuance, the transaction has experienced collateral reduction of 39.8% from loan amortization, loan repayment, principal recovered from defaulted loans and realized losses from defaulted loans. As of the April 2014 remittance report, 67 loans remain out of the original 87. The transaction benefits from defeasance collateral, representing 26.3% of the current pool balance. In the next 12 months, 63 loans, representing 97.1% of the current pool balance, are scheduled to mature. Excluding defeasance collateral, these loans have a weighted-average exit debt yield of 10.7%. Given the stable credit metrics of these loans, it is likely the majority of these loans will be able to acquire refinancing capital.

At issuance, DBRS shadow-rated one loan, representing 10.6% of the current pool balance, as investment grade. DBRS has today confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

According to the April 2014 remittance report, there are three loans in special servicing and 13 loans on the servicer’s watchlist, representing 5.9% and 24.5% of the current pool balance, respectively. Two of the specially serviced loans are highlighted in detail below.

The Penn’s Purchase II loan is secured by a retail outlet center in Buckingham Township, Pennsylvania. The loan transferred to special servicing in January 2009 for payments default and was deemed non-recoverable by the servicer in November 2012. According to the February 2014 servicer site inspection, the property is in Good condition; however, it suffers from the lack of anchor tenants and its tertiary location. As of the September 2013 rent roll, the property was only 56% occupied, with roughly half of the tenancy paying percentage rents. The property was last appraised in May 2013 at $6.18 million, down from $19.5 million at issuance. According to the servicer, the asset is being marketed for sale and will be included in a June 2014 auction. DBRS expects the trust to experience a loss with the resolution of this loan.

The 10 East Baltimore loan is secured by a Class B office building in the Baltimore, Maryland, CBD. The loan transferred to special servicing in March 2013 due to payment default, and the servicer is currently pursuing foreclosure. The property is currently 68% occupied, with a State of Maryland agency occupying 32% of the NRA through November 2020. In comparison, Class B office properties in the Baltimore CBD submarket are reporting a lower availability rate of 14%, according to CoStar. The property had YE2013 NOI of approximately $620,000 and received an updated appraisal in June 2013 of $9.3 million, down from $16.7 million at issuance. DBRS expects the trust to also experience a loss with the resolution of this loan.

The transaction also has specific risk to the Northern New Jersey office market, as four of the largest 15 loans in the transaction, representing 15.6% of the current pool balance, are secured by office properties in various submarkets. According to CoStar, Class B office properties in the Northern New Jersey office market are reporting an availability rate of 6.8%, with individual submarket availability rates ranging from 6.8% to 24.6%. One of the trust loans, 10 Independence Boulevard, is in special servicing but remains current. Reportedly, the servicer and borrower are pursuing a deed-in-lieu resolution; however, an expected closing date has yet to be determined. Two of the remaining three loans are currently on the servicer’s watchlist for a low DSCR. All four loans are sponsored by Mack-Cali Realty, a publicly traded REIT with over 30.7 million sf in property under ownership. The majority of its holdings consist of assets in New Jersey, including 168 of its total 279 commercial properties. DBRS continues to monitor all four loans, particularly in light of their respective upcoming maturities, which occur in Q3 2014 and Q4 2014.

As part of its review, DBRS analyzed the top 15 loans, loans on the servicer’s watchlist, specially serviced loans and the shadow-rated loan, which represent approximately 74.3% 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 and loans on the servicer’s watchlist. The April 2014 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.