DBRS Upgrades Two Classes and Confirms One Class of J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4

DBRS Limited (DBRS) has today upgraded the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2005-LDP4 issued by J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4 (the Trust) as follows:

-- Class B upgraded to BB (high) (sf) from B (sf)
-- Class C upgraded to B (sf) from CCC (sf)

DBRS has also confirmed the ratings on the following class:

-- Class X-1 at AAA (sf)

All trends are Stable. Class C has had an Interest in Arrears designation added.

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 a collateral reduction of 97.2%, with 16 of the original 184 loans outstanding as of the January 2016 remittance report. Since the last DBRS rating action in May 2015, 110 loans have left the Trust, contributing to a principal paydown of approximately $1,080 million. Two of these loans were liquidated from the Trust with a combined realized loss of approximately $1.1 million, contained to the defaulted Class D.

As of the January 2016 remittance, 14 loans, representing 84.0% of the current pool balance are reporting year-end (YE) 2014 financials and ten loans, representing 57.3% of the current pool balance are reporting partial-year 2015 financials. Based on the YE2014 financial reports, the weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield were 1.20 times (x) and 11.6%, respectively. Two of the three largest loans, representing 36.4% of the current pool balance, are scheduled to mature in 2018. As of the January 2016 remittance, there are seven loans in special servicing, representing 69.4% of the current pool balance, including the largest loan (Prospectus ID#17) 23 Main Street. The remaining six specially serviced loans are non-performing matured balloon loans. In addition, one loan, representing 0.5% of the current pool balance, is on the servicer’s watchlist. Three loans are detailed below.

23 Main Street (Prospectus ID#17, 26.5% of the current pool balance) is secured by a 399,393 sf Class A office building in Holmdel, New Jersey. This loan was transferred to the special servicer in July 2015 due to potential hardship associated with the sole tenant’s lease renewal request, which potentially would impact the repayment of the loan at maturity in September 2018. Vonage currently occupies 100% of the net rentable area (NRA) with a lease expiration of August 2017. The loan transferred to the special servicer after Vonage indicated that it would require a significant tenant inducement (TI) package and property upgrades in order to extend its lease. Through negotiations between the tenant and the sponsor (Mack-Cali REIT), Vonage has agreed to extend its lease to October 2023. The property will undergo $3.0 million in repairs and Vonage will receive a $4.6 million TI allowance. According to the servicer, funding will derive from existing reserves, net cash flow captured during cash management and funds held by the sponsor. The new lease terms include a triple net rental rate of $13.25 per square foot (psf) with 2.0% of annual rent steps, which is above the current rental rate of $12.65 psf, as per the June 2015 rent roll. In addition, Vonage will have two five-year renewal options at market rates. According to the Q3 2015 financials, the annualized DSCR was 1.68x, a slight increase from YE2014 DSCR of 1.65x and YE2013 DSCR of 1.66x.

University Club (Prospectus ID#45, 10.0% of the current pool balance) is secured by a student housing property in Kalamazoo, Michigan, near the Western Michigan University campus. The loan has had a history of performance issues as it originally transferred to special servicing in January 2008 due to delinquency. The loan was subsequently assumed and modified with terms including principal forgiveness of $1.3 million, a maturity extension to January 2016 and interest-only debt service payments. Despite the loan modification, the property continued to struggle with low occupancy and rental rates and was once again transferred to special servicing in August 2013 due to delinquency. In November 2015, the loan was modified again with an A/B note split consisting of a $9.9 million A-note and a $2.1 million B-note. The maturity date was extended to December 2018 and the loan remains interest only. While the B-note will accrue interest at the original rate of 5.7%, the A-note has a stepped interest pay rate at 3.5% for the first year, 5% in the second year and 5.7% in the third year, with the deferred interest accruing over the term of the modification. According to the September 2015 rent roll, the property was 68.6% physically occupied; however, the property was 84.0% leased for the fall 2015 school semester, according to the servicer. DBRS has requested the occupancy rate for the spring 2016 academic semester and is currently awaiting a response. A September 2015 appraisal valued the property at $10.1 million, which has decreased significantly from the $12.3 million value from the December 2009 appraisal and the issuance value of $17.5 million. Based on the last 12 months ending August 31, 2015, net cash flow of $515,000, the property currently generates enough cash flow to pay the annual debt service on the modified A-note in Years 1 and 2 of the modification. Along with the B-note principal and the projected deferred interest on both the A- and B-notes, DBRS also modeled the current advances outstanding on the loan of $1.7 million as a loss.

Pinnacle Peak Office Building (Prospectus ID#94, 2.7% of the current pool balance) is secured by a 40,333 sf office building located in Phoenix, Arizona. This loan was previously in special servicing and was modified in July 2012 with a maturity extension to September 2017, a principal write-off of $2.7 million and increased interest-only periods through maturity. The loan returned to the master servicer in November 2012 and has remained current since. The property was 83.1% occupied according to the September 2015 rent roll; however, 57.5% of NRA have leases scheduled to expire within the next 12 months including, the largest two tenants. Lakes Venture LLC (16.4% of NRA) has a lease scheduled to expire in April 2016 and The Iams Company (15.7% of NRA) has a lease that expired in October 2015. DBRS has requested a leasing update regarding the two tenants and is currently awaiting a response. The servicer stated that the third-largest tenant, Arizona Pinnacle Engineering (10.4% of NRA), extended its lease term beyond the January 2016 expiration to June 2021. According to CoStar, approximately 4,000 sf of space is listed as available, which is equivalent to Wells Fargo’s space (6.4% of NRA) that has a lease expiring in January 2016 and a vacant unit at the property. According to the YE2014 financials, the YE2014 DSCR was 0.97x compared to the YE2013 DSCR of 0.82x. Given the uncertainty surrounding lease renewals pertaining to the largest two tenants, DBRS modeled this loan with an elevated probability of default to account for potential rollover risk.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The January 2016 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 (December 2015), which can be found on our website under Methodologies.