DBRS Downgrades Four Classes of COMM 2004-LNB3

DBRS has today downgraded four classes of Commercial Mortgage Pass-Through Certificates, Series 2004-LNB3 issued by COMM 2004-LNB3 as follows:

-- Class J to D (sf) from C (sf)
-- Class K to D (sf) from C (sf)
-- Class L to D (sf) from C (sf)
-- Class M to D (sf) from C (sf)

In conjunction with the downgrades, DBRS has discontinued the rating to Class E as it has been fully repaid and removed the Interest in Arrears designations on Classes H, J, K, L and M.

The downgrades follow the liquidation of one loan from the pool in the October 2014 remittance. Beau Terre Office Building (Prospectus ID#16) was secured by a 370,000 sf Class B office complex, comprising 36 separate single-story buildings located in Bentonville, Arkansas. Bentonville was formerly the corporate headquarters of Wal-Mart, which relocated its headquarters to New York in 2009, prompting suppliers to follow suit and, correspondingly, office space availability within the submarket to dramatically increased. The loan was transferred into special servicing due to imminent monetary default in May 2010 and became real estate owned in September 2011. Through the special servicer’s leasing efforts and improvement of the local real estate market, the property’s value improved to $20.6 million, according to an April 2014 appraisal, up from a previous low of $14.3 million as of August 2012. At issuance, the property was valued at $49.0 million. The loan’s liquidation resulted in a realized loss to the trust of $19.5 million, reflecting a 60.0% loss severity. As a result of the liquidation, $5.3 million of appraisal subordinate entitlement reduction interest was repaid to the trust, which was applied to unpaid interest to Classes H, J, K, L and M. The realized trust loss eliminated the remaining balance of Class N, already rated D (sf) by DBRS, fully eroded the principal balances of Classes J, K and L and reduced the principal balance of Class H by 3.1%. As a result of the principal losses to these Classes, DBRS has downgraded the respective ratings to D (sf).

There are seven loans remaining in the pool with a combined outstanding principal balance of $48.5 million. Three loans are currently on the servicer’s watchlist. The largest, 3 Beaver Valley (Prospectus ID#14, 72.50% of the current pool) is on the watchlist because the sole tenant of the building has a lease expiration in January 2015. The loan is scheduled to mature on December 1, 2014. Melbourne Park Apartments (Prospectus ID#6, 4.13% of the current pool) is the only loan in special servicing. The loan was transferred to special servicing in July 2014 for failing to repay at maturity in May 2014. According to the special servicer, the borrower has indicated that refinancing has been secured and they expect the loan to repay sometime during October 2014. Following this rating action, DBRS will conduct an in-depth review of this transaction.

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.