DBRS Upgrades Two and Confirms Thirteen Classes in DBUBS 2011-LC2 Mortgage Trust

DBRS Limited (DBRS) has today upgraded the ratings of two classes of DBUBS 2011-LC2 Mortgage Trust as follows:

-- Class B to AA (high) (sf) from AA (sf)
-- Class C to A (high) (sf) from A (sf)

In addition, DBRS has confirmed the remaining 13 transactions as follows:

-- Classes A-1, A-1FL, A-1C, A-2, A-3FL, A-3C, A-4, X-A and X-B at AAA (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Classes F and FX at B (low) (sf)

The trend for all classes is Stable. The Class A-1C and Class A-3C certificates are exchangeable with the Class A-1FL and Class A-3FL certificates, respectively. The Class FX certificate is considered notional. Its notional balance will be equal to the principal certificate balance of Class F.

The upgrades are a result of continued strong performance of the transaction overall. As of the March 2015 remittance, the pool has experienced 9.4% collateral reduction since issuance, and 66 out of the original 67 loans still remain outstanding. Within the next 14 months, 22 loans are expected to mature. DBRS views the refinance risk of the upcoming maturities to be low, as all maturing loans report a weighted-average (WA) exit debt yield of 11.6%. Additionally, three of these loans, representing 4.0% of the pool are fully defeased. According to the most recent full year financials, the WA debt service coverage ratio (DSCR) and debt yield for the pool are 1.60 times (x) and 11.4%, respectively.

There are eight loans on the servicer’s watchlist, which, combined, represent 10.8% of the pool balance. There is one loan on the watchlist for reasons related to below-threshold DSCR.

1450 Broadway (Prospectus ID#5, 5.55% of the pool balance) is the largest loan on the servicer’s watchlist. It is being flagged for deferred maintenance items and declined cash flow and occupancy. The subject is a Class B office building in Times Square, New York, originally built in 1931. The property’s occupancy rate has dropped to 79.8% as of February 2015 from 89.0% at issuance because of the departure of a major tenant. DBRS was aware that this tenant was likely to vacate at issuance, and a tenant reserve with an original balance of $1.5 million has been utilized to re-lease much of the vacated space. The current reserve balance for this loan is $759,448l. Although new leases have been signed at the property since the loan was issued, a number of other vacancies have contributed to the overall decline in occupancy and cash flow. Leases representing 17.8% of the net rentable area have been signed in the past 12 months. According to the most recent site inspection, the building is going through a $25 million renovation, which includes upgrades to the windows, lobby and elevators. The purpose of the loan was to repay acquisition financing from the borrowers, who purchased the building in 2011 and retain approximately $91 million of cash equity in the transaction.

There is also one loan in special servicing. Montgomery Village Professional Center (Prospectus ID#46, 0.5% of the current pool balance) was transferred to special servicing for payment default in May 2014. A receiver was appointed in late 2014, and the special servicer is currently pursuing foreclosure. This loan is secured by a medical office complex comprising eight two-storey buildings located in an affluent area approximately 25 miles northwest of Washington D.C. The property’s occupancy rate has declined to 46.3% as of February 2015 from 89.5% at issuance following the departure of several tenants. The YE2014 DSCR was reported to be 0.41x. A June 2014 appraisal valued the property at $7.0 million, down from $13.0 million at issuance, and a servicer’s site inspection conducted in February 2015 noted that the property was in need of capital repairs estimated to cost $982,250. Given the current loan balance of $9.0 million, DBRS expects that the resolution of this loan will result in a realized loss to the trust.

The DBRS analysis took into account the largest 15 loans, the specially serviced loan and the loans on the servicer’s watchlist. Combined, these loans account for 70.6% of the current outstanding 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, loans on the servicer watchlist and the loan in special servicing. 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.

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

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