DBRS Upgrades Three Classes and Confirms Three of GE Commercial Mortgage Corporation, Series 2005-C1

DBRS Limited (DBRS) has today upgraded the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2005-C1 (the Certificates) issued by GECMC 2005-C1.

-- Class D upgraded to A (low) (sf) from BBB (sf)
-- Class E upgraded to BB (sf) from B (sf)
-- Class F upgraded to CCC (sf) from C (sf)

DBRS has also confirmed the ratings on the following classes:

-- Class C at A (high) (sf)
-- Class G at C (sf)
-- Class X-C at AAA (sf)

All trends are Stable, with the exception of Class F and G, which have ratings that do not carry trends. Class F and Class G also continue to have Interest in Arrears.

The rating upgrades reflect the increased credit support to the bonds as a result of loan amortization and successful loan repayment. Since issuance, the pool has experienced collateral reduction of 93.9%, with four of the original 127 loans outstanding as of the November 2015 remittance report. In the last 12 months, 29 loans have left the trust, contributing to a principal paydown of $297.4 million. Four of these loans were liquidated from the trust with a combined realized loss of $180,243, contained to the defaulted Class H. As of the November 2015 remittance, there are two loans in special servicing, representing 18.4% of the current pool balance. Both are non-performing matured balloon loans that show updated appraised values, indicating a weighted-average property value decline of 69.2% since issuance. The largest loan, Lakeside Mall, representing 73.0% of the current pool balance, was previously in special servicing and was modified in January 2010 with a maturity extension to June 2016. Although the loan has since been returned to the master servicer and continues to perform per the terms of the modification, the loan will be subject to a special servicing fee upon disposition from the trust. This event, coupled with the current interest shortfalls within the capital stack, could potentially cause interest to be shorted from multiple classes in the bond stack. The remaining loans in the pool are highlighted below.

The Lakeside Mall loan (Prospectus ID#1, 73.0% of the current pool balance) is secured by 650,000 sf portion of a 1.5 million sf regional mall in Sterling Heights, Michigan. The loan transferred to the special servicer in May 2009 when its sponsor, General Growth Properties, Inc. (GGP), filed for bankruptcy in the same year. The loan was modified with terms of the modification, including a maturity extension until June 2016 from the original loan maturity in December 2009, along with step increases in debt service. The loan has since returned to the master servicer and is currently on the servicer’s watchlist for a low debt service coverage ratio (DSCR), which was 1.13x at Q2 2015. The Q2 2015 DSCR has improved compared with the YE2014 DSCR of 1.07x, but remains below the YE2013 DSCR of 1.18x as a result of decreased occupancy and income, coupled with increased debt service payments. As of January 2013, annual debt service payments increased by approximately $530,000, with a scheduled increase to $600,000 in January 2016, placing further stress on loan performance. The collateral consists of the in-line space at the mall, as well as the Macy’s Men’s & Home anchor pad. Other anchors at the mall that are not a part of the collateral include Macy’s, JC Penney, Lord & Taylor and Sears, all of which are scheduled to expire past loan maturity. According to the June 2015 rent roll, the mall’s occupancy rate remains relatively flat at 91.9%, with in-line occupancy at 73.2%. Based on the YE2014 sales report, which is the most recent received by DBRS, the mall continues to suffer from declining sales. Year-over-year sales for stores that are less than 10,000 sf are reporting a 6.7% decline and stores greater than 10,000 sf have declined 14.3% in sales. As of November 2015, the borrower has not requested a payoff quote and has been contacted regarding plans for refinancing. In addition, the servicer will provide an update on whether the borrower intends to retain the property in their portfolio or if the borrower plans to potentially market the asset for sale. Despite the ongoing cash flow issues, the property is in average condition with no deferred maintenance noted, according to the July 2015 site inspection.

The Skytop Pavilion loan (Prospectus ID#48, 13.1% of the current pool balance) is secured by a grocery-anchored retail property in Cincinnati, Ohio. The loan transferred to special servicing in May 2012 for imminent default. As of November 2015, the servicer noted that a leasing strategy is being reassessed in preparations for an eventual REO sale. The property occupancy has remained depressed at 60.8% as of the June 2015 rent roll, with Bigg’s Grocer as the largest tenant, representing 51.3% of the NRA, expiring in February 2020. The store is still operating at this location and the tenant continues to pay rent as agreed. In addition, the second-largest tenant, El Rancho Grande (4.0% of NRA), has not notified the property manager regarding its plans at the property following its upcoming lease expiration in March 2016. One tenant executed a year lease commencing in May 2015, and the servicer noted that the tenant will likely sign another short-term lease at the property. Furthermore, the third-largest tenant, representing 1.8% of the NRA, has extended its lease from February 2016 to February 2018. Several vacancies remain; however, including the 27,000 sf (20.2% of the NRA) space formerly leased to Urban Active, with the servicer indicating that there are no new prospective tenants as of November 2015. CoStar is reporting average vacancy rates and asking rental rates of 14.0% and $12.83 psf, respectively, for comparable retail properties within the submarket, as of November 2015. A June 2014 appraisal indicates a value of $5.75 million ($43 psf) for the property, a decrease from the $6.9 million value from the May 2013 appraisal, and a further decline from the issuance value of $19.6 million. DBRS expects the trust will incur a loss with the liquidation of the asset and accounted for the loss in its analysis.

The 1 East Main Street loan (Prospectus ID#78, 5.2% of the current pool balance) is secured by a 62,177 sf multi-building office property in Bay Shore, New York. The loan transferred to special servicing in June 2011 for imminent default and a receiver was appointed in January 2013, with foreclosure occurring in October 2014. The final resolution strategy is still being determined as of November 2015. The servicer noted that all leasing activity has been put on hold to evaluate a possible redevelopment or a repositioning project for the asset, with a timeline undetermined as of November 2015. The property occupancy is depressed at 18.4% according to the August 2015 rent roll, with an average rental rate of $18.97 psf, a decline compared to the May 2014 occupancy rate of 28.4%. Four of the remaining five tenants at the property, representing 14.2% of the NRA, are all on month-to-month leases. As of November 2015, CoStar is reporting average vacancy rates and asking rental rates of 13.2% and $22.41 psf, respectively, for comparable office properties within the submarket. The June 2015 site inspection shows the property is in average condition; however, significant TI/LC dollars would be required to renovate vacant office space in order to sign new tenants. A June 2015 appraisal valued the property at $2.7 million, which has decreased from the $3.4 million value from the January 2014 appraisal and the issuance value of $7.8 million. This value remains below the outstanding loan balance, which totals approximately $5.3 million as of November 2015. DBRS also expects the trust will incur a loss with the liquidation of the asset and accounted for the loss in its analysis.

The Versatile Warehouse loan (Prospectus ID#53, 8.7% of the current pool balance) is secured by a multi-use industrial property in Davie, Florida. The loan was previously on the servicer’s watchlist due to a decline in performance, as the YE2013 DSCR was reported at 1.09x. According to YE2014 OSAR, loan performance has subsequently improved as a result of savings from insurance, utilities, repairs and maintenance, which contributed to a 23.7% increase in NOI over the YE2013 financials. The property was 89.7% occupied as of June 2015, with a correspondingly stable YE2014 DSCR of 1.37x and was removed from the servicer’s watchlist in June 2015.

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 and specially serviced loans. The November 2015 Monthly CMBS 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 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.