DBRS Confirms Ratings on ReadyCap Commercial Mortgage Trust 2014-1

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of ReadyCap Commercial Mortgage Trust 2014-1 Commercial Mortgage Pass-Through Certificates (the Certificates) issued by ReadyCap Commercial Mortgage Trust 2014-1:

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

All trends are Stable.

The rating confirmations reflect the increased credit enhancement to the bonds as a result of the unexpected full prepayment of four loans and the performance of the outstanding loans remaining in line with expectations since issuance. At issuance in October 2014, the collateral consisted of 71 fixed- and floating-rate mortgage loans secured by 75 commercial and multifamily properties. As of the September 2015 remittance, 67 loans remain in the pool with an aggregate outstanding principal balance of $172.6 million, resulting in a total collateral reduction of 5.1% since issuance. The top 15 loans continue to exhibit stable performance with a weighted-average debt service coverage ratio (DSCR) and debt yield of 1.59 times (x) and 11.5%, respectively, based on the most recent year-end reporting available for the individual loans. As of the September 2015 remittance, there are no loans in special servicing and eight loans on the servicer’s watchlist, representing 8.6% of the current pool balance. Two of the most pivotal loans on the watchlist are highlighted below.

The Harbour Way loan (Pros ID#20000205, 2.9% of the current pool balance) is secured by a 64,952 square foot Class B industrial property located in Richmond, California. The loan was added to the watchlist in April 2015 as a result of the single-tenant’s lease expiration in July 2015. According to the June 2015 rent roll, the property was 100% occupied by Alion, Inc. on a triple net lease, which commenced in August 2012, with the tenant paying a rental rate of $9.18 psf. As of October 2015, CoStar market data indicates that comparable properties in the Richmond/San Pablo Submarket located within a ten-mile radius of the subject are reporting vacancy rates of 3.9% and average rental rates that are below the subject at $6.14 psf. The borrower noted that it is currently in the process of negotiating a five-month lease extension with the tenant and will provide updates as they are made available. In addition, the borrower has currently placed the property under contract for sale. According to October 2015 Real Capital Analytics data, the property is generally valued on the mid- to higher-end range of comparable industrial properties within the submarket at $7.4 million, including a comparable property also located on Harbour Way that is currently for sale. Despite the tenant rollover risk, the loan benefits from a tenant reserve balance of $500,000 and a $500,000 interest reserve. The Q2 2015 DSCR was reported at 1.27x, an increase from the DBRS Underwritten (UW) DSCR of 1.19x. The loan was modeled with an elevated probability of default to reflect the tenant’s expiring lease at the property.

The 8222 Calmont Avenue loan (Pros ID#20000103, 1.7% of the current pool balance) is secured by a 191-unit multifamily property, located in Fort Worth, Texas. The loan was added to the watchlist in June 2015 as a result of several deferred maintenance issues present at the property, according to the most recent site inspection. As of the December 2014 site inspection, the property was rated in fair condition with nine down units, most of which were in a state of significant disrepair. Several of the units have experienced water damage that will require full refurbishment. In addition, one unit endured $60,000 worth in damages as a result of a fire at the property in May 2015. The servicer noted that the repair permits have been issued and the repairs should be completed by now, as they await confirmation from the borrower. The December 2014 site inspection also noted minor deferred maintenance items such as damaged vents and screens, as well as barren landscaping throughout the property. In response to the deferred maintenance letter sent to the borrower in April 2015, the servicer has received picture evidence showing that the borrower has addressed the deferred maintenance issues. Despite the ongoing deferred maintenance issues, the loan remains current with a Q2 2015 DSCR of 1.81x and occupancy rate of 85%, an increase from the DBRS UW DSCR of 1.09x and the occupancy rate of 78% at issuance.

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.