DBRS Confirms Ratings on UBS-Citigroup Commercial Mortgage Trust, Series 2011-C1

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2011-C1 issued by UBS-Citigroup Commercial Mortgage Trust, Series 2011-C1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)

All trends are Stable.

The rating confirmations reflect the transaction’s current performance, which remains in line with DBRS expectations at issuance. The pool comprises 32 fixed-rate loans secured by 38 commercial properties, and since issuance, the pool has experienced a collateral reduction of 4.2%. As of the September 2015 remittance report, all loans remain in the transaction, with three loans representing 15.6% of the pool balance scheduled to mature in 2016. According to the most recent year-end financial reporting available, the pool has a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.50 times (x) and 11.9%, respectively. This is an improvement from the DBRS underwritten WA DSCR and the DBRS WA Debt Yield of 1.35x and 10.0%, respectively. The transaction also benefits from defeasance collateral as two loans, representing 1.4% of the current pool balance, are fully defeased. There are no delinquent or specially serviced loans; however, three loans, representing 5.8% of the current pool balance, are on the servicer’s watchlist. The largest loan in the transaction and the two largest loans on the servicer’s watchlist are highlighted below.

Trinity Centre (Prospectus ID#1, 10.8% of the current pool balance) is secured by the fee interest in two adjacent 22-story Class A/B+ office buildings located in lower Manhattan. The sponsors contributed approximately $6.4 million in cash equity to close at issuance. The subject is located just north of Wall Street in the Financial District. According to the June 2015 rent roll, the property was 87.8% occupied, a decrease from 90.2% at YE2014 but above the 84.5% occupancy rate underwritten by DBRS at issuance. The largest tenant, Port Authority of New York and New Jersey, occupies 13.4% of net rentable area (NRA) and 7.2% of NRA of its space expired in July 2015. However, according to CoStar, the leases were renewed for all or most of the space, with new expiry dates in 2022.

CoStar reported a market vacancy rate and gross rent of 12.8% and $42.57 per square foot (psf), respectively, for Class A office buildings located in the subject’s financial district submarket. CoStar reports an availability rate of 23.4% at the subject, which has historically hovered at occupancy rates near 90%. As of YE2014, the subject reported a DSCR of 1.36x, a significant increase from the YE2013 DSCR of 1.16x and DBRS UW DSCR of 1.21x. The cash flow growth is likely tied to rental rate increases for recently signed leases at the property. At issuance, recent lease signings ranged between $30.00 psf and $35.11 psf; by comparison, new tenants signed in 2014/2015 have rental rates ranging between $39.14 psf and $42.00 psf.

Shops at Greenwood (Prospectus ID#15, 2.6% of the current pool balance) is a 210,244 sf mixed-use property located in Greenwood Village, Colorado, approximately 13 miles south of Denver. The property is primarily comprised of retail space (190,902 square feet (sf)), with a smaller office component of approximately 19,000 sf on the second floor. The loan has been on the servicer’s watchlist since April 2013 because of a decline in DSCR below the CRE Finance Council threshold of 1.10x due to a drop in occupancy. As a result, a lock box was activated and will remain in place until the DSCR is above the 1.10x threshold. There has been an improvement in the cash flow as occupancy has been steadily increasing, resulting in a YE2014 DSCR of 1.08x, an increase from 0.95x at YE2013.

According to the June 2015 rent roll, the physical occupancy rate was 79.8%, compared 78.5% at YE2014 and 82.4% as underwritten at issuance. Tuesday Morning, Inc. occupies 4.4% of the NRA on a month-to-month (MTM) lease. The tenant appears to have been MTM since 2014. The servicer has advised that the tenant does not intend to sign a long-term lease but is expected to remain at the subject property. Other tenants on MTM leases represent 12.7% of the NRA and DBRS excluded the rental revenue generated from these tenants at issuance when underwriting the loan at issuance. DBRS will continue to monitor this property for occupancy fluctuations and will provide updates as they become available.

Preston Lloyd Shopping Center (Pros ID#26, 1.0% of the current pool balance) is an unanchored retail center comprising approximately 54,000 sf, located in in Dallas, Texas, approximately 18 miles north of the Dallas central business district in a high residential area. This loan was placed on the servicer’s watchlist because of a decline in occupancy. Classy Canine Day Care (24.0% of the NRA) vacated the property at their lease expiration in October 2013, lowering the property’s occupancy to 59.5%, where it remained as of the June 2015 rent roll. The servicer advises that there is a prospective tenant interested in the vacant space and a letter of intent has been sent out for a signature. The YE2014 DSCR was 1.21x, a decrease from the YE2013 DSCR of 1.32x. Although Classy Canine represented 22.6% of the net rental income, rent steps that came into effect in 2014 for remaining tenants helped to minimize the impact to cash flows and hold the DSCR at a relatively healthy level. DBRS will continue to monitor the loan and provide updates as they become available.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The September 2015 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact DBRS at info@dbrs.com.

Notes:
All figures are in U.S. 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 (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.