DBRS Confirms Ratings of Asset-Backed Notes Issued by Selkirk 2014-3A

DBRS Limited (DBRS) has today confirmed the ratings of the Asset-Backed Notes (the Certificates) issued by Selkirk 2014-3A as listed below:

-- Class A2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Positive with the exception of Class A2, which carries a Stable trend. In addition, Class IO has been discontinued, as the class repaid in full with the May 2016 remittance.

The rating confirmations reflect the overall stability of the pool as a result of scheduled loan amortization, successful loan repayment, and that the performance of the outstanding loans has remained in line with expectations at issuance. Furthermore, the significant 17.1% increase in collateral reduction over the last 12 months has prompted DBRS to assign a Positive trend to Classes B through F, given the strong credit enhancement and the increase in subordination to the bonds. At issuance, the collateral consisted of 62 seasoned, fixed-rate loans secured by 65 commercial and multifamily properties. As of the November 2016 remittance, 50 loans remain in the pool with an aggregate outstanding principal balance of $552.3 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.79 times (x) and 15.2%, respectively, based on the most recent year-end (YE) reporting available for the individual loans. Also, the top 15 loans have experienced healthy WA net cash flow growth of 35.1% over the DBRS underwritten figures. As of the November 2016 remittance, there are no loans in special servicing and no loans on the servicer’s watchlist. One of the loans in the top 15 is highlighted below.

The Town & Country Plaza loan (Prospectus ID#12, representing 2.6% of the current pool balance) is secured by a retail property located in Miami, Florida. According to the March 2016 rent roll, the property was 100.0% occupied, with the largest tenant, Sedano’s Supermarkets (Sedano’s), representing approximately 23.9% of the net rentable area (NRA). Sedano’s lease was scheduled to expire in July 2016; however, its lease automatically renewed for an additional five years because Sedano’s did not notify the borrower that it would vacate the property at least nine months prior to its lease expiration. With the renewal of Sedano’s, tenant rollover risk is limited to approximately 5.3% of the NRA within the next six months. As of November 2016, CoStar was reporting vacancy rates of 1.9% and average asking rental rates of $33.71 per square foot (psf) for comparable retail properties within a one-mile radius of the subject, which is above the subject’s average rental rate of $21.20 psf. As of YE2015 reporting, the DSCR improved to 1.83x compared with the DBRS underwritten figure of 1.22x, and the property remains in overall good condition, with minor deferred maintenance limited to asphalt deterioration, according to the March 2016 site inspection.

The ratings assigned to the Class B, C, D, E and F Certificates 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 rating reflects the sustainability of loan performance trends not demonstrated.

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