DBRS Confirms Ratings of LCCM 2014-909

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-909 (the Certificates), issued by LCCM 2014-909 Mortgage Trust:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which remains in line with DBRS expectations at issuance in June 2014. The collateral consists of the leasehold interest in a Class A LEED Silver certified office building located in the Plaza District in Manhattan. As of the October 2014 rent roll, the subject was 100% occupied, with the largest tenant being the United States Postal Service (USPS), which occupies 36.7% of the net rentable area (NRA). As of YE2014, the transaction reported a debt service coverage ratio (DSCR) and debt yield of 2.11 times (x) and 8.4%, respectively, which compares similarly with the DSCR and debt yield at issuance of 2.03x and 7.9%.

Tenant rollover in the near term is minimal, as only 4.6% of the NRA has lease expirations through 2015. Only 26.4% of the NRA expires during the loan term, concentrated in 2019 and 2020. In addition, 80.1% of the NRA is leased by investment-grade tenants, including the USPS, CMGRP, Inc. and Forest Laboratories, Inc., providing stable cash flow.

The largest tenant, USPS, pays below-market rent of $2.23 per square foot (psf) compared with the weighted-average in-place rent of $51.72 psf for all other tenants at the subject. According to REIS, rental rates at the subject continue to trail the submarket, with the average rental rate quoted for the Plaza District at $59.96 psf. Though the USPS pays a depressed rental rate compared with the submarket average, a portion of its space consists of two subterranean levels included in its total 492,000 sf. While DBRS does not consider that this space could be easily converted to office space because of the lack of windows and high ceilings, the space would likely command a higher rental rate than what is currently being paid if the USPS were to vacate its space ahead of its lease expiration date in October 2038.

The subject is located in Plaza District, one of the most expensive and prestigious markets for office space in Manhattan, second only to Times Square. The total loan exposure of $261 psf is considered very low compared with the value of the collateral. According to REIS, there were eight office building transactions in 2014 with an average sales price of $1,175 psf.

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 (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.