DBRS Confirms Ratings on RAIT 2015-FL4 Trust

DBRS, Inc. (DBRS) has today confirmed the ratings on the following classes of notes issued by RAIT 2015-FL4 Trust:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-1 at BB (sf)
-- Class X-2 at BB (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class G.

The rating confirmations reflect the stable performance of the pool since issuance in May 2015. The transaction currently consists of 18 interest-only, floating-rate loans secured by 23 traditional commercial real estate properties, including office, retail, industrial and multifamily. According to the May 2016 remittance, two loans have been repaid in full, resulting in collateral reduction of 15.0% since issuance. Based on the most recent last 12-month financial reporting for the individual loans, the pool has a weighted-average debt yield of 8.6%.

There are currently no loans on the servicer’s watchlist or any delinquent or specially serviced loans. All the properties securing the loans are cash flowing assets; however, most properties are in a period of stabilization with viable plans to improve asset value. Select loans were initially funded with reserves, which may have included funds for capital improvements, tenant inducements, leasing commissions and operating shortfalls. In both its initial transaction analysis and in this review, DBRS took into account the potential effects of the in-place reserves. DBRS has highlighted one loan below.

The Summit Office Park loan (10.6% of the current pool balance) is secured by a four-building Class B office property in Independence, Ohio, built in stages from 1984 to 1989. In addition to the trust loan of $20.0 million, there is also a $3.0 million mezzanine loan to fund leasing costs for new and renewal leases across the property. As of January 2016, property occupancy improved to 72.5% when compared with the issuance occupancy rate of 68.1% as a result of several small- and medium-sized tenants signing leases at the property. Base rental rates for these tenants ranged from a low of $12.91 psf to a high of $21.25 psf and leasing packages paid by the borrower ranged from a low of $6.50 psf to high of $35.00 psf. The largest tenants at the property include Nations Lending Corp. (8.3% of the total net rentable area [NRA]), Reliability First (6.5% of the NRA) and Cigna Healthcare (5.1%) of the NRA, which have lease expirations in January 2017/June 2022, February 2027 and July 2018, respectively. According to the Q1 2016 Reis report, office properties in the Rockside Road Corridor submarket have an average vacancy of 23.6% with average an asking rental rate of $16.86 psf.

According to the May 2016 loan level reserve report, the TI/LC reserve has a current balance of $2.5 million, with additional monthly contributions of $50,000. Based on the current vacancy across the property, this computes to over $18.00 psf in available dollars to lease the property to a stabilized occupancy rate, which appears reasonable given the leasing packages given to tenants that have signed leases within the past year. According to the T12 ending March 2016 financials, the net operating income was $2.1 million, indicative of a 10.8% debt yield on the trust loan and a 9.4% debt yield on the whole loan.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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