DBRS Confirms Ratings of Real Estate Asset Liquidity Trust, Series 2007-1

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2007-1 (the Certificates) issued by Real Estate Asset Liquidity Trust 2007-1:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class XC-1 at AAA (sf)
-- Class XC-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Classes D-1 at BBB (sf)
-- Classes D-2 at BBB (sf)
-- Classes E-1 at BBB (low) (sf)
-- Classes E-2 at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class G at BB (sf)
-- Class H at BB (low) (sf)
-- Class J at B (high) (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stability of the pool, which has experienced a collateral reduction of 33.7% since issuance as a result of scheduled loan amortization. At issuance, the pool consisted of 76 fixed-rate loans secured by 100 multi-family and commercial properties. As of the February 2015 remittance, 55 loans remain in the pool with an aggregate outstanding principal balance of $340,982,892. Four loans have paid out of the pool since the last review, including one loan formerly in special servicing, which resulted in a full payoff with no loss to the trust. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.44 times (x) and 11.1%, respectively, based on the most recent year-end reporting available for the individual loans. In addition, the top 15 loans have experienced 17.9% WA net cash flow growth on average over the DBRS underwritten figures. As of the February 2015 remittance, there are ten loans on the servicer’s watchlist, representing 26.3% of the current pool balance, four of which individually represent less than 1.0% of the current pool balance. The two most pivotal loans on the servicer’s watchlist are highlighted below.

Conundrum Portfolio (Prospectus ID#2, representing 10.0% of the current pool balance) is secured by a portfolio of 15 cross-collateralized, cross-defaulted mixed-use properties totalling 589,000 square feet located throughout Ontario. The loan was added to the watchlist in May 2014 as a result of the YE2013 DSCR’s declining to 1.00x from 1.24x at YE2012. The decline has been attributed to an increase in operating expenses. According to the YE2013 operating statement analysis report, the repairs and maintenance costs for the portfolio increased by 78.3% from YE2012 to YE2013. The May 2014 servicer site inspection for the Gorham Street property indicated that work had been completed to replace walkways, and that work on the property’s roof was underway, which may have contributed to the increase in the expense base. Despite the increase in operating expenses, the portfolio exhibits stable occupancy at 91.5%, according to the April 2014 rent roll, remaining relatively unchanged from the YE2013 occupancy rate of 92.0%. Based on the portfolio’s total square footage, the three largest tenants are Dawn Food Products (Canada) Ltd. (15.1% of NRA, lease expiring in March 2024), Cardinal Meat Specialists Ltd. (12.2% of NRA, lease expiring in September 2026), and Collega International Inc. (6.8% of NRA, lease expiring in June 2018). All of these leases extend beyond the loan’s scheduled maturity date. DBRS will continue to monitor this loan.

Sundance Pooled Interest (Prospectus ID#5, representing 7.0% of the current pool balance), is a pari passu loan secured by a Class A office building, a 7,000-square foot restaurant pad and a gas bar with a convenience store and car wash, all located on the same commercial parcel in southern Calgary. The loan was added to the watchlist in December 2014 after the largest tenant, WorleyParsons Canada Services Ltd. (WorleyParsons; 70.7% of NRA), vacated the property in November 2014, ahead of the original scheduled lease expiration of September 2016. As a result of the tenant’s early departure, occupancy declined to 29.3%. Prior to the largest tenant’s departure, the property was 100% occupied, based on a rent roll dated March 2014. The borrower has since been able to lease one of the suites formerly occupied by WorleyParsons, representing 25.2% of the NRA, to Fluor Canada Ltd. and is continuing to market the remaining suites. The loan was modeled with an elevated probability of default to reflect the cash flow decline from WorleyParsons’s early departure, and DBRS will continue to monitor this loan.

DBRS maintains investment-grade shadow ratings on Atrium Pooled Interest (Prospectus ID#3, representing 11.2% of the current pool balance) and Langley Power Centre (Prospectus ID#1, representing 10.6% of the current pool balance). DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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 February 2015 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 Canadian dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

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