DBRS Confirms All Classes in DBUBS 2011-LC2 Mortgage Trust

DBRS has today confirmed all classes of DBUBS 2011-LC2 Mortgage Trust as follows:

-- Classes A-1, A-1FL, A-1C, A-2, A-3FL, A-3C, A-4, X-A and X-B at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Classes F and FX at B (low) (sf)

The trend for all classes is Stable. The Class A-1C and Class A-3C certificates are exchangeable with the Class A-1FL and Class A-3FL certificates, respectively. The Class FX certificate is considered notional. Its notional balance will be equal to the principal certificate balance of Class F.

The pool has experienced a 3.3% collateral reduction since issuance and all of the original 67 loans remain outstanding. There was one loan in special servicing at the time of the last surveillance review. This loan has since been transferred back to the master servicer as a corrected loan and has been fully defeased. The Top 15 loans represent approximately 67.2% of the current pool balance. The pool is also concentrated by property type and location, with 44% of the current pool balance represented by office properties and 55% of the pool located in three states. Much of the pool’s office exposure is located in urban or dense urban areas such as New York, Philadelphia, Pittsburgh and Dallas. The diversity of the pool based on property count, where 67 loans are secured by 131 properties, further mitigates any risk associated with these concentrations.

Montgomery Village Professional Centre (Prospectus ID#46, 0.4% of the current pool balance) was transferred to special servicing for payment default in May 2014 and is currently more than 90 days delinquent. This loan is secured by a medical office complex comprising eight two-story buildings located in an affluent area approximately 25 miles northwest of Washington D.C. The property’s occupancy rate dropped to 45% as of May 2014 from 89.5% at issuance after several tenants vacated, including the largest tenant at issuance, which executed an early termination option in 2013. A June 2014 appraisal valued the property at $7.0 million, down from $13.0 million at issuance, and estimated that $2.1 million of capital improvements are needed to stabilize the property. The borrower is expected to submit a proposal for modification and continues to actively market the property. The subject loan refinanced existing debt on the property and provided an equity return of $2.8 million to the sponsor at issuance. DBRS will continue to closely monitor this loan for further developments.

There are five loans on the servicer watchlist, none of which individually represent more than 1.0% of the current pool balance. The largest loan on the watchlist was originally flagged for upcoming lease expirations; however, according to servicer commentary, several of the spaces with vacating tenants have already been re-leased. Two other loans are on the watchlist for non-performance-related issues. At this time, DBRS does not believe any of these loans to be at immediate risk of default.

The pool benefits from low-leverage financing, with a weighted-average Debt Yield of 10.96% as of the June 2014 remittance. At issuance, the weighted-average Debt Yield, based on the issuer’s cash flows, was 10.6%, and the DBRS underwritten Debt Yield was 9.6%. The Top 15 loans have experienced healthy cash flow growth over the last three years, with a weighted-average net cash flow change of 17.9% from the DBRS underwritten figures.

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, loans on the servicer watchlist and the loan in special servicing. The June 2014 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.

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.

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