DBRS Upgrades Five, Confirms Five and Discontinues One Rating in Morgan Stanley Capital I Trust 2005-HQ6

DBRS Limited (DBRS) has today upgraded five classes of the Morgan Stanley Capital I Trust 2005-HQ6:

-- Class A-J to AAA (sf) from A (low) (sf)
-- Class B to AAA (sf) from BBB (sf)
-- Class C to AA (sf) from BBB (low) (sf)
-- Class D to A (sf) from BB (high) (sf)
-- Class E to BBB (low) (sf) from B (low) (sf)

In addition, DBRS has confirmed Class F through Class J, the notional Class X-1 and discontinued Classes A-1A and A-4B as they have been fully repaid. All trends are Stable, with the exception of Class G through Class J, which do not currently carry trends.

The upgrades reflect the increased credit enhancement to the bonds as a result of ongoing loan repayment and amortization. The upgrades also take into consideration DBRS expected losses on specially serviced loans. Since issuance, the transaction has experienced collateral reduction of 88.8%, with 51 of the original 177 loans currently outstanding in the pool. A total of 80 loans have repaid from the trust in the last 12 months, contributing approximately $1.58 billion in principle repayment. Four loans have also been liquidated from the pool during the last year, resulting in a realized trust loss of $13.9 million. To date, 29 loans have liquidated from the trust, bringing the aggregate realized loss to the trust to $134.3 million. Six loans, representing 9.9% of the current pool balance are fully defeased.

As of the April 2015 remittance, the pool had a weighted average debt service coverage ratio (DSCR) of 1.4 times (x) and a weighted average debt yield of 10.4%. In the next four months, 44 loans, representing 86% of the current pool balance are scheduled to mature. Excluding those which are defeased or in special servicing, these loans have a weighted average DSCR and weighted average exit debt yield of 1.60x and 13.40%, respectively. There are currently five loans in special servicing and 29 loans on the servicer’s watchlist, representing 11.1% and 48.3% of the current pool balance, respectively. Many of the loans on the servicer’s watchlist have been flagged for upcoming maturity and DBRS believes the majority of these loans will successfully repay in full. The two largest loans in special servicing are highlighted in detail below.

County Line Commerce Center (Prospectus ID#23, 6.67% of the current pool balance) is secured by a multi-tenant office/industrial complex, located in Warminster, Pennsylvania. The loan was transferred to special servicing in March 2009 due to imminent default and has been real estate owned (REO) since September 2010. As of January 2015, the complex was 58.5% occupied with an average rental rate of $12.29 psf. The largest tenants include ABB Inc. (22.3% NRA through March 2025), Aon Service Corporation (22% of the NRA through October 2020) and Infologix (9.4% NRA through February 2017). A September 2014 appraisal valued the property at $9.0 million compared to $10.75 million in October 2013 and $19.0 million at issuance. According to the appraisal report, the decrease in value can be attributed to a lack of positive leasing activity over the past three years, the odd configuration of the property as well as the amount of capital needed to upgrade and lease the collateral. Furthermore, the property has been under environmental monitoring by the EPA for several years due to past ground water contamination by an industrial user. Although the servicer contends the testing will not affect the value of the property, DBRS believes this issue may be contributing to the property’s inability to attract buyers and expects the trust to experience a loss with the resolution of this loan.

Park Techne Center (Prospectus ID#60, 2.82% of the current pool balance) is secured by three mixed-use buildings located in Milford, Ohio. The loan was initially placed on the servicer’s watchlist in May 2013 as a result of a low DSCR caused be a decline in occupancy and was transferred to special servicing in March 2015 due to maturity default. The special servicer is currently dual tracking foreclosure and workout discussions with an expected resolution date as of January 2016. At YE2014, the DSCR had declined to 0.76x from 0.82x at YE2013 and 0.98x at YE2012. According to the December 2014 rent roll, the property was 71% occupied with an average rental rate of $8.85 psf. The largest tenants include Stationary Works (12.6% NRA through August 2016) and Option Care Enterprise (7.6% NRA through August 2016). Despite the operating shortfalls, the loan is current has never been delinquent. DBRS will continue to track the resolution process of this loan.

As part of its review, DBRS analyzed the top 15 loans, specially serviced loans and loans on the servicer’s watchlist, which comprise approximately 87.0% of the current pool balance.

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 April 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 U.S. dollars unless otherwise noted.

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

The applicable methodology is CMBS North American CMBS Surveillance (January 2015), which can be found on our website under Methodologies.