DBRS Confirms Rating of Selkirk No. 1 - Limited

DBRS Limited (DBRS) has today confirmed the rating on the following class of Selkirk No. 1 Trust Commercial Pass-Through Certificate (the Certificate) issued by Selkirk No. 1 - Limited, as listed below:

-- Class A at AAA (sf)

The trend is Stable. Class A is privately placed pursuant to Rule 144A.

The rating confirmation reflects the strong credit enhancement of the above-noted class, as subordination has continued to increase to the bonds as a result of scheduled loan amortization and the unexpected full prepayment of four loans since issuance. At issuance in December 2013, the collateral consisted of 55 seasoned, fixed-rate loans secured by 67 commercial and multifamily properties. As of the November 2015 remittance, 51 loans remain in the pool with an aggregate outstanding principal balance of $786.5 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.56 times (x) and 12.9%, respectively, based on the most recent year-end (YE) reporting available for the individual loans. In addition, two loans representing 2.3% of the current pool balance are maturing by November 2016 with a WA DSCR and exit debt yield of 2.20x and 18.2%, respectively, according to the YE2014 reporting. As of the November 2015 remittance, there are no loans in special servicing and two loans on the servicer’s watchlist, representing 6.6% of the current pool balance; however, the Master Primary Servicer has noted that both loans will be removed from the servicer’s watchlist as of the December 2015 remittance. The smaller of the two loans was flagged due to the lease expiration of the largest tenant in January 2014. DBRS was able to confirm that the lease in question has now been renewed through May 2019. The largest loan currently on the watchlist, which is also the second-largest loan in the pool, is highlighted below.

The Mission Towers II loan (Prospectus ID#2, representing 5.3% of the current pool balance) is secured by a Class A office property located in Santa Clara, California. According to the servicer, the loan is on the watchlist as the borrower failed to submit financial statements. However, the loan will be removed from the watchlist as of the December 2015 remittance since the borrower has now been responsive and has provided YE financial reporting. The loan was also previously on the watchlist due to the largest tenant, WebEx, which represented 57.3% of the NRA, vacating its space upon lease expiration in December 2014. The subject was approximately 98.3% occupied prior to the tenant’s departure, according to the December 2013 rent roll. As of December 2015, CoStar is showing that a portion of the WebEx space has been re-leased to Malwarebytes, which has assumed space on the 11th and 12th floors. The tenant moved into the property in November 2015 and represents 18.1% of the NRA. In addition, DataStax, representing 9.0% of the NRA, has occupied the entire eighth floor since September 2015, which was also previously leased by WebEx. As a result of the recent leasing activity, the property occupancy has improved to 73.1% since WebEx’s departure from the subject with the remaining space being marketed on CoStar as available for lease. The loan was originally structured with a tenant improvement/ leasing commission reserve that had a balance of $4.7 million at the time of issuance to aid in re-leasing the vacant space at the property. As of YE2013 reporting, the DSCR was 1.88x compared to the DBRS underwritten DSCR of 1.33x. The loan benefits from experienced sponsorship, which also owns the neighboring building, Mission Towers I. DBRS accounted for the elevated vacancy in its analysis and expects the subject’s occupancy to improve given the recent leasing momentum and the assets desirable location in the heart of Silicon Valley.

DBRS continues to monitor this deal on a monthly basis. For more information on this rating action, please contact us 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.