DBRS Confirms Ratings of Wachovia Bank Commercial Mortgage Trust, Series 2004-C15 and Changes Trends on Three Classes

DBRS Limited (DBRS) has today confirmed the ratings of the following classes of Commercial Mortgage Pass-Through Certificates, Series 2004-C15 (the Certificates) issued by Wachovia Bank Commercial Mortgage Trust, Series 2004-C15 (WBCMT 2004-C15 or the Trust):

-- Class D at A (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (high) (sf)
-- Class G at C (sf)
-- Class X-C at AAA (sf)

All trends are Stable, with the exception of Class G, which has a rating that does not carry a trend. In addition, the Interest in Arrears designation was added to Class F and Class G. DBRS has also discontinued and withdrawn the ratings for Class H and Class J, as these classes previously defaulted.

The rating confirmations reflect the relatively stable performance of the transaction since the last DBRS rating action in July 2015. The Stable trend assignments reflect the improved resolution outlook of the two largest loans in the pool, which are specially serviced, as well as the principal proceeds recovered following the disposition of the Gale Office Pool loan (Prospectus ID#4), which occurred in May 2016. The trust incurred a realized loss of $10.8 million and recovered proceeds of $52.0 million, resulting in a loan loss severity of 17.2%. The trust loss wiped out the remaining balance on Class K and Class J and reduced the principal balance on Class H by 15.2%.

Since issuance, the transaction has experienced collateral reduction of 95.6% from loan amortization, successful loan repayment, principal recovered from liquidated loans and realized losses from defaulted loans. As of the July 2016 remittance report, six loans remain out of the original loan count of 87. The three performing loans represent 22.0% of the current pool balance, including the Pine Court II loan (Prospectus ID#49, 8.9% of the current pool), which is fully defeased. The Peter Jefferson Place V loan (Prospectus ID#44, 9.6% of the current pool) and CVS – Cedar Park, TX loan (Prospectus ID#69, 3.5% of the current pool) have both exhibited strong historical occupancy rates and stable cash flows with a weighted-average DSCR of 1.86x, based on the most recent year-end reporting available for the individual loans. The Peter Jefferson Place V loan is 94.8% occupied, primarily by medical tenants, as of March 2016, and the CVS – Cedar Park, TX, loan is occupied by a single tenant on a long-term lease expiring in September 2023. The remaining three loans are in special servicing, representing 78.0% of the current pool balance. DBRS anticipates the losses for these loans upon disposition to be contained to the Class G certificates. To date, ten loans have been liquidated from the Trust at a combined realized loss of $42.8 million. All three of the non-performing loans are real estate owned (REO) and are discussed in more detail below.

The 10 Independence Boulevard loan (Prospectus ID#10, 30.8% of the current pool balance) is secured by a Class B office building situated in a suburban business park in Warren, New Jersey. The loan transferred to special servicing for imminent default in October 2013 and became REO in July 2015. As of July 2016, the loan is expected to be resolved by year-end, as the asset is listed for sale and was placed in the most recent Ten-X auction on June 29, 2016. Although the loan has historically performed under a 1.0x DSCR, the subject’s occupancy rate was strong at 98.5% according to the May 2016 rent roll, improving from the 91.1% occupancy rate as of January 2015. The largest three tenants collectively represent approximately 90.0% of the NRA, with leases that are scheduled to expire between August 2017 and May 2020. According to CoStar, the subject’s average rental rate of $24.08 psf is above the average of comparable Class B office properties within the Warren County submarket, which reported an average rental rate and vacancy rate of $15.84 psf and 15.0%, respectively. Real Capital Analytics reports 11 comparable office properties within a ten-mile radius of the subject were sold within the past three years at prices ranging between $27 psf and $231 psf. The subject falls within the mid-range of the sales comparables, based on the August 2015 appraised value of $17.1 million ($142 psf). While the August 2015 value is below the issuance appraised value of $29.0 million, it has improved significantly from the April 2014 appraised value of $12.5 million. DBRS anticipates the Trust to experience a loss upon loan disposition.

The 4 Sylvan Way loan (Prospectus ID#13, 26.8% of the current pool balance) is secured by a Class B office building located in Parsippany, New Jersey. The loan transferred to special servicing for imminent maturity default in August 2014, with the servicer completing a deed-in-lieu and taking title of the asset as of May 2015. The servicer has advised that a ten-year lease renewal was recently negotiated with the single tenant (T-Mobile USA, Inc.) that was initially scheduled to expire in May 2017, with the tenant paying $16.00 psf, according to the May 2016 rent roll. The asset is being prepared for market with the new lease in place and DBRS has requested the terms and rates of the executed lease renewal. The subject’s occupancy rate compares favorably to Class B office properties within the Parsippany submarket between 50,000 and 150,000 sf, which are reporting an average rental rate and vacancy rate of $20.54 psf and 32.7%, respectively, according to CoStar. Given the single tenant’s long-term lease commitment in a relatively soft office market, the performance outlook for the loan has improved compared to the prior year, as the November 2015 appraisal valued the property at $7.3 million, reflective of a 59.4% decline from the September 2014 appraisal value of $18.0 million. The considerable decline in asset value as of November 2015 was due to the valuation being completed under the assumption that the T-Mobile tenant would vacate upon lease expiration in May 2017. The appraisal also noted that upon lease expiration, it would be very difficult and would take an extended period of time to find a replacement single-tenant user for the subject. As a result, the value assumes that the property will be converted to multi-tenant use, with an assumed increased tenant improvement allowance cost during the lease-up of the property. According to Real Capital Analytics, 14 comparable office properties within the past three years in close proximity of the subject were sold between $52 psf and $400 psf, compared to the implied sales psf value of $69 for the subject based on the November 2015 value. As the tenant subsequently renewed its lease, DBRS anticipates property value to improve and will continue to monitor for developments; however, DBRS still anticipates the trust to experience a loss with loan resolution.

The 10 East Baltimore Street loan (Prospectus ID#28, 20.4% of the current pool balance) is secured by a Class B office property in the downtown business district of Baltimore, Maryland. The loan transferred to special servicing for imminent default in March 2013 and is currently REO. As of July 2016, the servicer noted that the asset is under contract and the buyer is currently in the due diligence period, with a scheduled closing date in August 2016. Although the sales price figure has not been provided, a February 2016 broker opinion of value (BOV) suggests that the asset value has considerably declined from the August 2015 appraisal value of $12.0 million, which was $4.7 million below the issuance value. Property occupancy has trended downward over the years as the property was 59.5% occupied according to the May 2016 rent roll, compared with the May 2014 occupancy rate of 62.2%. As of May 2016, the subject’s average rental rate was $19.04 psf, with the largest three tenants collectively representing 44.8% of the NRA on leases scheduled to expire from November 2017 to February 2022. The subject’s elevated vacancy rate is above the average of comparable office properties within a two-mile radius of the subject, which are reporting an average vacancy rate and rental rate of 27.2% and $14.11 psf, respectively, according to CoStar. Real Capital Analytics reports that the sale of five comparable properties that occurred within the past three years and within a one-mile radius of the subject sold at prices ranging from $21 psf to $89 psf. Based on the February 2016 BOV, the subject falls on the lower end of that range. Despite the elevated vacancy rate and significantly impaired asset value, the property was reported to be in average condition with minor deferred maintenance noted, according to the November 2015 site inspection. DBRS also anticipates the trust to experience a loss with the ultimate resolution of this 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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