DBRS Confirms Ratings of BAMLL Commercial Mortgage Securities Trust 2014-IP

DBRS Limited (DBRS) has today confirmed all classes of BAMLL Commercial Mortgage Securities Trust 2014-IP as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)

All trends are Stable.

The rating confirmations reflect the continued stable performance of the transaction, which closed in June 2014. Independence Plaza is a 1.5 million square foot (sf) mixed-use residential and commercial complex located in Manhattan, New York. The property consists of three 39-story apartment towers and commercial space located on the ground and second floors of the buildings. Located at 310 Greenwich Street, 40 Harrison Street and 80 North Moore Street, the buildings are a part of the highly desirable Tribeca neighborhood. The loan is sponsored by Vornado Realty L.P. (Vornado) and Stellar. Sponsorship is considered strong given Vornado’s experience in the Manhattan market as well as its significant financial resources.

The subject was built in 1975 under the Mitchell-Lama Housing Program, which provided affordable housing to lower- and middle-income families. The subject exited the program in 2004, at which point The Landlord Assistance Program (LAP) was implemented. The LAP provided initial below-market rent with annual rental rate increases to tenants who did not qualify for the Section 8 Enhanced Voucher program (Section 8). The strategy of the sponsor is to convert LAP and Section 8 units to fair market rents by continuing to renovate units as tenants occupying those units vacate.

At issuance, DBRS assumed a turnover rate of approximately 30 Section 8 apartments and ten LAP apartments per year. The transitions have been in line with expectations as 25 LAP units and 30 Section 8 units have turned over since issuance. A total of ten units have been successfully converted to fair market rent as of YE2015. As of the January 2016 rent roll, the residential portion of the subject was 93.4% occupied, a slight decrease compared with YE2014 occupancy of 95.0%. Of the 1,325 residential units, 325 units (24.5%) are currently rented to LAP tenants and 394 units (29.7%) are rented to Section 8 tenants. The average rental rate for the fair market tenants are $4,794 per unit compared with $1,676 per unit for LAP tenants and $4,394 per unit for Section 8 tenants.

The commercial space represents approximately 20.0% of the total net rentable area of the subject, including a 230,000 sf five-story parking garage. At the January 2016 rent roll, this portion was 96.9% occupied by nine tenants. At issuance, the commercial space was 100.0% occupied by 16 tenants. Similar to the residential portion, the strategy is to upgrade the appeal of the retail spaces to align with the surrounding neighborhood with an aim to increase rental rates in line with the market average.

According to Q3 2015 financials, the debt service coverage ratio (DSCR) is 3.36 times (x), slightly lower than the YE2014 DSCR of 3.44x. Given the significant potential upside in rental rate increases, DBRS expects that the loan will continue to perform strongly.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.