DBRS Downgrades Two Classes and Confirms Three Classes of GE Commercial Mortgage Corporation, Series 2005-C1

DBRS Limited (DBRS) has today downgraded the ratings of the following classes of Commercial Mortgage Pass-Through Certificates, Series 2005-C1 issued by GE Commercial Mortgage Corporation, Series 2005-C1:

-- Class X-C from AAA (sf) to A (low) (sf)
-- Class F from CCC (sf) to C (sf)

DBRS has also confirmed the ratings of the following classes of Commercial Mortgage Pass-Through Certificates, Series 2005-C1:

-- Class D at A (low) (sf)
-- Class E at BB (sf)
-- Class G at C (sf)

All trends are Stable, with the exception of Classes F and G, which have ratings that do not carry trends. Class G also continues to carry the Interest in Arrears designation.

The rating downgrade of Class X-C reflects the bond’s position in the waterfall, with its rating tied to the highest-rated bond in the capital stack, which is currently Class D. The rating downgrade to Class F reflects increased expected losses to the trust surrounding the resolution of the largest loan in the transaction, which currently represents 89.3% of the current pool balance and is in special serving.

Since issuance the pool has experienced a collateral reduction of 95.3%, with two of the original 127 loans outstanding as at the October 2016 remittance report. In the past 12 months, two loans, representing 1.4% of the pool balance, have left the trust, resulting in a current outstanding pool balance of $78.6 million. Both remaining loans are highlighted below, beginning with the specially serviced Lakeside Mall loan, which, as mentioned above, represents 89.3% of the current pool balance.

The Lakeside Mall loan (Prospectus ID#1) is secured by a 650,000 square foot (sf) portion of a 1.5 million sf regional mall in Sterling Heights, Michigan. The collateral includes the in-line space at the mall as well as the Macy’s Men’s & Home anchor. Non-collateralized anchors include Sears, JCPenney, Macy’s and Lord & Taylor. The whole loan currently has a balance of $140.7 million, with the trust note totalling $70.2 million; the companion pari passu note is securitized in the COMM 2005-LP5 transaction. The loan originally transferred to special servicing in May 2009 when its sponsor, General Growth Properties, Inc. (GGP), filed for bankruptcy. The loan was ultimately modified with terms such as a maturity date extension to June 2016 and increasing debt service payments over time. The loan remained on the servicer’s watchlist ever since it was returned to the master servicer in June 2010 because of a low debt service coverage ratio (DSCR); however, the loan remained current. As at May 2016, the loan was again transferred to the special servicer for imminent maturity default, as GGP did not secure refinancing capital. According to the servicer, the sponsor is in negotiations regarding forbearance to facilitate its pursuit to sell the property. As at YE2015, the loan reported a DSCR of 1.30 times (x) compared with 1.18x as at YE2014. According to the June 2016 rent roll, the property was 93.1% occupied with in-line occupancy of 77.4%, which has decreased modestly since June 2015 when the property reported in-line occupancy of 79.5%. There are 18 tenants, representing 9.5% of the net rentable area, that have lease expirations in the next six months. Macy’s Men’s & Home had a lease expiry in January 2016 but extended it to January 2021. The special servicer did not receive any indication from the sponsor that Macy’s intends to close its stores at the subject, which is positive given the recent announcement of Macy’s closures nationwide. The servicer also noted that there are no co-tenancy clauses associated with Macy’s at the subject.

The subject has experienced suppressed sales year over year, as evidenced in the trailing 12 months ended June 2016 tenant sales report. Year-to-date sales volume for in-line tenants decreased by -4.6% since the previous year, with a running 12 months sales figure of $272.00 per square foot (psf) compared with $284.00 psf in the previous year. Year-over-year sales for stores fewer than 10,000 sf reported a -5.88% decline and stores greater than 10,000 sf have declined by -3.61% in sales. The mall was last valued at $156.1 million in April 2009 (down from $305.0 million at issuance) when the loan was initially transferred to special servicing. While overall commercial property values have increased since 2009, DBRS expects there to be an additional value decline for the property given the negative sales trends and the fact that the sponsor is looking to sell the property. DBRS expects the trust to experience a loss with the resolution of this loan.

The Versatile Warehouse loan (Prospectus ID#53; 10.7% of the current pool balance) is secured by a multi-use industrial property in Davie, Florida. According to the YE2015 operating statement analysis report, the loan reported a stable DSCR of 1.55x compared with 1.37x in YE2014. Improvements in performance are attributed to savings from reduced repair and maintenance, management fee and general and administrative expenses. Property occupancy has improved to 96.6% as at the June 2016 rent roll from 89% in YE2014.

The ratings assigned to Classes D and E materially deviate from the higher ratings implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology — in this case, the uncertain loan-level risk, which is reflected in the ratings.

For more information on this transaction and supporting data, please log in to DBRS CMBS IReports found at www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly, with periodic updates provided in the DBRS CMBS IReports platform.

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

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

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 methodologyies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (October 2016), which can be found on our website under Methodologies.