DBRS Upgrades Two and Confirms Ten Classes of Schooner Trust, Series 2007-7

DBRS Limited (DBRS) has today upgraded the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2007-7 issued by Schooner Trust, Series 2007-7:

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

In addition, DBRS has confirmed the following classes:

-- Class A-2 at AAA (sf)
-- Class D at BBB (sf)
-- Class E 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)
-- Class XC at AAA (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class M.

The rating upgrades reflect the overall strength of the pool, which has experienced a collateral reduction of 42.0% since issuance as a result of scheduled loan amortization and loan repayment. At issuance, the pool consisted of 72 fixed-rate loans secured by 73 multifamily and commercial properties. As of the April 2015 remittance, 46 loans remain in the pool with an aggregate outstanding principal balance of $247.8 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.60 times (x) and 12.4%, respectively, based on the most recent year-end reporting available for the individual loans. In addition, two loans, representing 3.1% of the pool balance, are fully defeased as of the April 2015 remittance. There are no loans in special servicing and ten loans on the servicer’s watchlist, representing 20.0% of the current pool balance. Three of the most pivotal loans on the watchlist are highlighted below.

The Milner Professional Building (Prospectus ID#4, representing 5.8% of the current pool balance) is secured by a Class B office building in Scarborough, Ontario. The loan was added to the watchlist because of a decline in performance as the YE2013 DSCR was reported to be 0.79x compared with the YE2012 DSCR of 1.36x. The performance at the property declined following the departure of two tenants in 2012 and 2013. The tenants previously occupied 20.4% of the NRA combined and vacated upon lease expiration, bringing the property occupancy down to 72.7% as of April 2014. While there has reportedly been some interest in this space from potential tenants, DBRS has not received any new lease terms at this time. Further, the largest tenant at the property, Intria Items Inc., currently occupies 20.5% of the NRA on a lease scheduled to expire in July 2015. DBRS has not yet received a leasing update for this tenant and has modeled this loan with an elevated probability of default to reflect the upcoming lease expiration. DBRS will continue to monitor this loan.

The 3085 Hurontario Street loan (Prospectus ID#16, representing 2.8% of the current pool balance) is secured by a mixed-use (office-retail) property in Mississauga, Ontario. The loan is on the servicer’s watchlist for a low YE2013 DSCR of 1.04x, reportedly related to high operating expenses. In comparison with the YE2012 DSCR of 0.92x, the YE2013 DSCR has improved slightly but remains below threshold and on the watchlist. According to the May 2014 rent roll, the property was 88.0% occupied and anchored by Yuan Ming Supermarket, which occupies 23.6% of the NRA, on a lease expiring in July 2017. The remaining tenant roster consists of independent retailers and local businesses. The property was shown to be in average condition according to the May 2014 site inspection, which indicated that the borrower has been investing in the property through capital projects, including roof as well as heating, ventilation and air conditioning repairs. Despite the low DSCR, the loan has never been delinquent as the borrower has kept the loan current and DBRS will continue to monitor this loan.

The third-largest loan on the servicer’s watchlist is 8550, 8560 and 8564 Newman Boulevard (Prospectus ID#23, representing 2.4% of the current pool balance), which is secured by an office property in southwest Montréal, near the town of LaSalle. The loan was added to the servicer’s watchlist for a low YE2013 DSCR of 0.94x, reportedly related to increases in operating expenses for repairs and maintenance (R&M) as well as real estate taxes. The property was shown to be in average condition according to the November 2014 site inspection, with ongoing renovations being completed to the exterior of the property which may contribute to the R&M expenses. Despite the expense increase, the YE2013 performance has improved since YE2012 when the DSCR was reported to be 0.32x. According to the January 2015 rent roll, the property is 85.3% occupied, with the largest tenant, CLSC de LaSalle (representing 57.2% of the NRA) on a lease scheduled to expire in September 2016. The loan benefits from partial recourse to its respective sponsor.

DBRS maintains an investment-grade shadow-rating on MTS Building (Prospectus ID#1, representing 14.8% of the current pool balance). DBRS has today confirmed that the performance of this loan 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 as well as the largest loans in the pool 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 Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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

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