DBRS Confirms Three and Upgrades Four Classes of GE Commercial Mortgage Corporation, Series 2004-C2

DBRS, Inc. (DBRS) has today upgraded four classes of the GE Commercial Mortgage Corporation, Series 2004-C2 Commercial Mortgage Pass-Through Certificates as follows:

-- Class J to A (high) (sf) from BBB (sf)
-- Class K to A (sf) from BB (low) (sf)
-- Class L to A (low) (sf) from B (low) (sf)
-- Class M to BB (sf) from CCC (sf)

DBRS has also confirmed the ratings of the following classes:

-- Class N at CCC (sf)
-- Class O at CCC (sf)
-- Class X-1 at AAA (sf)

All trends are Stable, with the exception of Classes N and O, which have no trend assigned.

The rating upgrades reflect the increased credit enhancement to the bonds as a result of loan repayment and continued amortization. Since issuance, the pool has experienced collateral reduction of 96.0% with eight of the original 199 loans still outstanding as of the November 2014 remittance report. Two loans, representing 4.9% of the current pool balance, are fully defeased and there are four loans in special servicing, representing 43.0% of the current pool balance. The specially serviced loans are all non-performing matured balloon loans. Three of the four loans in special servicing have reported appraised values that indicate a weighted-average property value decline of 41.2%; however, the largest loan in special servicing was recently appraised with a property value well above the DBRS stressed exposure for the loan. As of the November 2014 remittance, there is one loan on the servicer’s watchlist, representing 42.2% of the current pool balance. The largest loan in special servicing and the loan on the servicer’s watchlist are highlighted below.

Continental Center (Prospectus ID#8, 42.2% of the current pool balance) is secured by a 26 story, class B office property in downtown Columbus, Ohio. The loan was transferred to the special servicer in December 2012 for imminent default because of cash flow issues at the property. The property underwent a loan modification in June 2014, which included initial interest rate reductions and the creation of a $17.5 million A-note and $5.6 million B-note, with the B-note accruing interest and the A-note interest rate increasing over the next three years back to the original rate. The maturity date was extended to March 2019 and the loan will remain interest-only (IO) through maturity with the borrower providing a capital contribution of $5.0 million at the time of loan modification. According to the June 2014 rent roll, the property is 80.9% occupied with the major tenants at the property being AT&T Inc. (AT&T), representing 33.5% of NRA with a lease expiration on December 31, 2017, and the State of Ohio Attorney General (State of Ohio AG, 32.4% of NRA expiring on June 20, 2015). The State of Ohio AG tenant is currently planning improvements to its leased space and the servicer will be providing an update on its expiring lease in the spring of 2015. AT&T once occupied the entire building, but has gradually downsized over time and, as a result, property level cash flow has been negatively affected. As such, the DBRS UW debt service coverage ratio (DSCR) has decreased from 1.24 times (x) to 1.05x at YE2012, according to the latest reported servicer financials. Further, YE2013 financials show a negative net operating income after taking into account non-operating expenses. DBRS has modeled the B-note and the accrued interest on the B-note and A-note as a loss, which totals $8.5 million with the resolution of this loan.

The largest loan in special servicing is Mariner Village Shopping Center (Prospectus ID#42, 16.6% of the current pool balance) and is secured by an unanchored retail property located on Westheimer Road in the Westwood/Bellaire submarket of Houston, Texas. The loan was transferred to special servicing for imminent default in November 2014 and has been paid through to the October 2014 payment. The loan matured in March 2014 and workout discussions with the borrower are ongoing, with a modification strategy being pursued. According to the June 2014 rent roll, the property is 82.2% occupied with major tenants including Rilion Gracie Jiu Jitsu Academy (7.3% of NRA with a lease expiry on December 31, 20145) and Mattress Firm Inc. (Mattress Firm; 7.3% of NRA rolling on March 31, 2015). The servicer has indicated that there are currently no updates on Mattress Firm’s lease as workout discussions with the borrower are ongoing. The DSCR declined to 1.18x at YE2013 from 1.25x at YE2012; however, Q2 2014 DSCR shows improvement at 1.62x as a result of decreased operating expenses. The January 2014 appraisal valued the property at $17.9 million, a $3.4 million increase from the issuance value of $14.5 million.

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, specially serviced loans and loans on the servicer’s watchlist. The November 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.