DBRS Finalizes Provisional Ratings on BAMLL Commercial Mortgage Securities Trust 2014-IP

DBRS has today finalized the provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-IP issued by BAMLL Commercial Mortgage Securities Trust 2014-IP. The trends are Stable.

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)

The collateral for the transaction consists of the fee and leasehold interests in a 1.5 million square foot (sf) mixed-use residential and commercial complex located in the Tribeca neighborhood of Manhattan in New York City. The property consists of three 39-story apartment towers and connecting townhomes, in addition to commercial space. The towers are at 310 Greenwich Street, 40 Harrison Street and 80 North Moore Street. The fee interest covers the entire property, while the leasehold interests relate to three parcels - the South Podium, North Podium and Tower Development - which contain a mix of parking, retail and apartment units. The property was originally built in 1975 under the Mitchell-Lama Program, an affordable housing initiative for lower- and middle-income families offered through tax breaks and subsidized mortgages. The property exited the program in June 2004, at which time the borrower offered the Landlord Assistance Program (LAP) to any tenants who did not qualify for the Section 8 Enhanced Voucher program (Section 8). The LAP provides an initial below-market rent and annual rent increases based on the New York City Rent Guidelines Board index plus a supplemental growth factor. The strategy for the building is to substantially renovate and roll to market rents both the Section 8 units and the LAP units as they become available. Since exiting the program in 2004, the borrower has converted 551 units (including units currently vacant and in the process of being renovated), 41.5% of the residential unit count, into market-rate apartments at a total cost of $25.8 million.

The DBRS value of $540.8 million is a 40.1% discount to the appraised value of $903 million. The appraisal assumes that approximately 30 Section 8 apartments and approximately ten LAP apartments will turn over per year in its analysis. This turnover rate is consistent with the prior year's turnover rates. DBRS analysis conservatively assumes that no additional rent-regulated units turn over to market rents. DBRS does make the assumption that the rent-regulated units do, however, achieve estimated programmatic rent increases annually until maturity in 2018. Given the embedded upside in the rollover of affordable rent units, an aggressive 7.0% cap rate was used to determine value. DBRS value per unit of $407,405, ignoring retail and parking space which contribute to over $7 million of base rent, translates to an average psf figure of $455 psf, well below average condo sales psf in Manhattan, even after adjusting for the lower quality.

Notes:
All figures are in U.S. dollars unless otherwise noted.

All classes are privately placed pursuant to Rule 144A.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.