DBRS Confirms Ratings of Asset-Backed Notes Issued by Selkirk 2014-3A, Removes from Under Review with Developing Implications

DBRS Limited (DBRS) has today confirmed the ratings of Asset-Backed Notes (the Certificates) issued by Selkirk 2014-3A and removed the Under Review with Developing Implications status on each class of the Certificates, as listed below:

-- Class A2 at AAA (sf)
-- Class IO at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable. Class A2, IO, B, C, D, E and F are retained by AIG.

The rating confirmations reflect the overall stability of the pool, which has experienced a collateral reduction of 9.7% as a result of scheduled loan amortization and the unexpected full prepayment of five loans since issuance. The Master Primary Servicer has now provided updated financial reporting for the majority of the loans in the pool, which prompted DBRS to remove the Under Review with Developing Implications status on each class of the Certificates. At issuance in September 2014, the collateral consisted of 62 seasoned, fixed-rate loans secured by 65 commercial and multifamily properties. As of the November 2015 remittance, 57 loans remain in the pool with an aggregate outstanding principal balance of $681.3 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.84 times (x) and 16.3%, respectively, based on the most recent year-end (YE) reporting available for the individual loans. As of the November 2015 remittance, there are no loans in special servicing and no loans on the servicer’s watchlist. However, four loans in the top 15 have considerable tenant rollover risk within the next 12 months, including the sixth-largest loan in the pool, representing 4.4% of the current pool balance. DBRS accounted for the elevated vacancies in its analysis for these loans, with the sixth-largest loan in the pool highlighted below.

The 1001 Franklin Avenue loan (Prospectus ID#6, representing 4.4% of the current pool balance) is secured by an office property located in Garden City, New York. According to the December 2014 rent roll, the property was 92.1% occupied, with approximately 26.6% of the net rentable area (NRA) scheduled to expire through 2016, including the second-largest tenant, Janney Montgomery. This tenant represents 10.8% of the NRA and has an upcoming lease maturity in June 2016. CoStar is reporting vacancy rates of 9.6% and average asking rents of $33.52 per square foot (psf) for comparable office properties in the Central Nassau submarket, which is below the subject’s average rental rate of $41.70 psf. As of December 2015, a leasing update has not been provided for the Janney Montgomery tenant. DBRS will continue to maintain a dialogue with the Master Primary Servicer to track the renewal of expiring leases and the signing of new tenants at the subject. Despite the elevated risk associated with the upcoming tenant rollover, the loan benefits from experienced loan sponsors which own and operate office properties in the submarket. In addition, the sponsor’s offices are headquartered across the street from the subject, ostensibly allowing them to have an on-site presence at the property. As of YE2014 reporting, the DSCR was 1.55x compared with the DBRS underwritten DSCR of 1.31x, and the property remains in overall good condition with no deferred maintenance noted, according to the April 2015 site inspection.

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.

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.