DBRS Confirms All Classes of GECMC, Series 2005-C1

DBRS, Inc. (DBRS) has today confirmed the ratings of 10 classes of GE Commercial Mortgage Corporation, Series 2005-C1, as follows:

-- Class A-5 at AAA (sf)
-- Class A-1A at AAA (sf)
-- Class A-J at A (high) (sf)
-- Class B at A (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at B (sf)
-- Class F at C (sf)
-- Class G at C (sf)
-- Class X-C at AAA (sf)

All trends are Stable, with the exception of Classes F, G, which have no trends.

DBRS previously discontinued Classes A-1, A-2, A-3, A-4, A-AB and X-P, following the repayment of their outstanding balances.

The rating confirmations reflect the overall stability of the pool, as well as the increased credit enhancement to the transaction overall. While the credit enhancement to each class has increased since issuance, the ratings are constrained at A (high) (sf), given the potential for future interest shortfalls (see below discussion of Lakeside Mall) and the lack of tolerance for interest shortfalls with respect to DBRS ratings above A (high) (sf).

As of the November 2014 remittance report, there has been collateral reduction of approximately 76.5% since issuance, with 94 loans having paid out of the pool at maturity or liquidated from the Trust. There are currently 33 loans remaining in the transaction. The transaction benefits from defeasance collateral as four loans, representing 19.7% of the current pool balance, are fully defeased. The largest 15 loans in the transaction, excluding defeasance, continue to exhibit stable performance, with a weighted-average debt service coverage ratio (DSCR) and weighted-average debt yield of 1.26 times (x) and 9.4%, respectively. In the next 12 months, 31 loans, representing 78.3% of the current pool balance, are scheduled to mature. Excluding defeasance, these loans have a weighted-average exit debt yield of 9.9%.

As part of its review, DBRS analyzed the top 15 loans, loans maturing in the next 12 months, loans in special servicing and loans on the servicer’s watchlist, which comprise 100% of the current pool balance. There are currently two loans in special servicing and 27 loans on the servicer’s watchlist, which represent 4.7% and 75.6% of the current pool balance, respectively. The loans on the servicer’s watchlist have been flagged, largely due to their respective upcoming maturities. DBRS considered the current performance of these loans in its analysis, which included assigning an elevated probability of default associated with the latest reported cash flows to the extent it was warranted.

The largest loan in special servicing, Skytop Pavilion (Prospectus ID#48, representing 3.3% of the current pool balance), is secured by a grocery-anchored retail property in Cincinnati, Ohio. The loan transferred to special servicing in May 2012, due to imminent default. According to the June 2014 rent roll, the property was 61.7% occupied with the largest tenant, Bigg’s, representing 51.3% of the Net Rentable Area (NRA), expiring in February 2020. Several vacancies remain, however, including the 27,000 sf (20.2% of the NRA) space formerly leased to Urban Active. DBRS is not aware of pending LOIs for any vacancies at the property. The property received an updated appraisal in June 2014, valuing the property at $5.8 million, well below the issuance value of $19.6 million. DBRS expects the Trust to experience a loss with the resolution of this loan.

The largest loan on the servicer’s watchlist, Lakeside Mall (Prospectus ID#1, representing 19.4% of the current pool balance), is secured by 650,000 sf of a 1.5 million sf regional mall in Sterling Heights, Michigan. The collateral consists of the in-line space at the mall, as well as the Macy’s Men’s & Home anchor pad. Other anchors at the mall include Macy’s, JC Penney, Lord & Taylor and Sears. The loan is on the servicer’s watchlist for a low debt service coverage ratio, which was 1.08x at Q2 2013. However, YE2013 DSCR has improved to 1.21x as a result of increased reimbursements and is in line with YE2012 DSCR at 1.25x. This loan originally matured in 2009 and was modified when its sponsor, General Growth Properties, Inc. (GGP), filed for bankruptcy in the same year. Terms of the modification included a maturity extension until June 2016 and step increases in debt service. As of January 2013, annual debt service payments increased by approximately $530,000 for three years, placing further stress on cash flow. According to the June 2014 rent roll, the mall was 91.9% occupied, with in-line occupancy at 69.9%. The mall reported sales of $308 psf for in-line tenants and $104 psf for anchored tenants, according to the T-12 ending June 2014 sales report. As a result of the loan previously being in special servicing and its subsequent modification, the special servicer is entitled to a workout fee totaling 1.0% of the loan balance at the time of loan repayment. The payment of this workout fee will reduce funds available to the Trust. Given the loan’s extended maturity date and the transaction’s waterfall (per transaction documents), this may result in a principal loss that would be contained to a class where DBRS is already expecting losses. However, if the loan were to prepay in advance of its extended maturity date, the fee would cause interest shortfalls up the capital stack, likely having an impact as high as the Class A-J certificates, given the size of the loan. Although it is likely that any shorted interest to the Class A-J and Class B certificates would be repaid within one remittance period, DBRS has no tolerance for interest shortfalls above the A (high) (sf) rating.

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, the loans in special servicing and the loans on the servicer’s watchlist. The November 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.

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.