DBRS Confirms Ratings of Morgan Stanley Capital I Trust 2005-HQ6

DBRS has today confirmed the ratings of the Morgan Stanley Capital I Trust 2005-HQ6 as follows:

-- Class A-1A at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-4A at AAA (sf)
-- Class A-4B at AAA (sf)
-- Class A-J at A (low) (sf)
-- Class B at BBB (sf)
-- Class C at BBB (low) (sf)
-- Class D at BB (high) (sf)
-- Class E at BB (sf)
-- Class F at B (low) (sf)
-- Class G at CCC (sf)
-- Class H at CCC (sf)
-- Class J at C (sf)
-- Class X-1 at AAA (sf)

All trends are Stable with the exception of Class G through Class J, which carry no trends.

The rating confirmations reflect the stable performance of the pool that include loss expectations on the loans in special servicing. According to the June 2014 remittance report, there has been collateral reduction of 32.8% since issuance as a result of successful loan repayment, loan amortization and recoveries and losses associated with liquidated loans. There are 121 of the original 172 loans remaining in the pool. The transaction benefits from defeasance collateral, as ten loans, representing 5.7% of the current pool balance, are fully defeased. According to YE2013 reporting, the largest 15 loans had a weighted-average debt service coverage ratio (DSCR) and debt yield of 1.46 times (x) and 10.7%, respectively. The pool is scheduled to experience significant principal repayment in the next year, as 88 loans, representing 67.6% of the current pool balance, are scheduled to mature. These loans have a weighted-average exit debt yield of 8.7%; however, when removing the two largest loans in the transaction, which make up 33.8% of the current pool balance and are located in Manhattan, New York, this figure rises to 10.0%.

There are currently six loans in special servicing and 44 loans on the servicer’s watchlist, representing 2.5% and 21.9% of the current pool balance, respectively. The largest specially serviced loan is highlighted below.

The County Line Commerce Center loan is secured by five interconnected office buildings and a stand-alone industrial building in Warminster, Pennsylvania. The loan transferred to special servicing in March 2009 and has been real estate owned since September 2010. According to the special servicer, the property performance has struggled due to its inferior location over 20 miles north of the Philadelphia central business district. Additionally, due to previous industrial uses prior to the site’s 1988 renovation, there is a concern of groundwater contamination; although, according to the special servicer, repeated tested levels continue to remain below unacceptable levels. Despite this fact, the Environmental Protection Agency has yet to issue a “No Further Action Letter,” which would benefit the property by potentially bringing in additional interested buyers. As a result of the prolonged issues with the property and an occupancy rate of 65%, the property was most recently valued at $10.75 million, down from the May 2012 appraised value of $19 million. While the new appraisal represents a large decrease in value, the new valuation is a fair estimation of market value based on the potential $11.05 million sale price of the property, which ultimately fell through in April 2013. DBRS expects the trust to realize a loss with the resolution of this loan.

The Lincoln Square loan, which represents 18.3% of the outstanding pool balance, is the largest loan in the pool. The loan is secured by a mixed-use property in the Upper West Side of Manhattan, highlighted by the Loews Lincoln Theater and Reebok Sports Club (Reebok), which have lease expirations in November 2028 and April 2015, respectively. Reebok has been at the property since 1996 and is expected to renew its lease. The collateral also contains a $40 million luxury extended-stay hotel, which has been fully defeased. The property continues to exhibit stable performance with an occupancy rate of 100% as of May 2014 and a YE2013 DSCR of 1.42x when percentage rent from Reebok is added back into the property’s revenue. The loan maturity is upcoming in 2015 and given the property performance, DBRS expects low refinance risk.

DBRS shadow-rates one loan in the transaction, representing 1.1% 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.

As part of its review, DBRS analyzed the top 15 loans, specially serviced loans, loans on the servicer’s watchlist and the shadow-rated loan, which comprise approximately 72.3% 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 select loans within the transaction. The June 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 CMBS Surveillance Methodology (November 2012), which can be found on our website under Methodologies.