DBRS Confirms Ratings on LCCM 2014-909 Mortgage Trust

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates (the Certificates) issued by LCCM 2014-909 Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B 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)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction. The collateral consists of the leasehold interest in a 32-storey, 1.3 million-square foot (sf) Class A LEED Silver-certified office building located in the Plaza District submarket in Midtown Manhattan. Built in 1968, the property is currently under a ground lease through May 31, 2041, with a flat annual payment of $1.6 million. The loan is sponsored by Vornado Realty Trust, which has an ownership or management interest in over 20 million sf of office space in Manhattan.

As of the October 2016 rent roll, the collateral was 99.8% occupied, remaining in line with the October 2015 rent roll and issuance occupancy rates reported at 99.9% and 99.8%, respectively. The largest tenant continues to be the United States Postal Service (USPS), which occupies 36.7% of the net rentable area (NRA) through October 2018. The tenant leases space from the sub-basement through the fourth floor of the subject. Inclusive of four five-year extension options, the USPS lease extends into October 2038. USPS pays below-market rent of $2.23 per square foot (psf), providing a source of long-term future upside potential. DBRS estimates the market rent for the USPS space to be $30 psf gross.

Since February 2016, Allegheny Energy Services (3.5% of the NRA, paid an average rental rate of $72 psf) and Citibank (4.3% of the NRA, paid an average rental rate of $53 psf) have both vacated the property. DBRS is currently awaiting a response from the servicer regarding the replacement tenants and lease details.

Comparing the October 2016 and October 2015 rent rolls, it appears as though CMGRP Inc., Morrison Cohen LLP and Geller & Company have all increased their footprints at the property by 31,323 sf (2.3% of the NRA at $50 psf), 65,068 sf (4.8% of the NRA at $70 psf) and 31,323 sf (2.3% of the NRA at $61 psf), respectively. The average gross rental rate for the collateral excluding the USPS space is $57.12 psf. According to CoStar, the Plaza District submarket reports a 9.4% vacancy rate with an average gross rental rate of $71.11 psf.

The annualized Q3 2016 OSAR reported a 1.97 times (x) debt service coverage ratio, a decline from 2.13x at YE2015 and 2.11x at YE2014. The DBRS original analyzed figure was 2.03x.

The ratings assigned to Class B through Class E materially deviate from the lower ratings implied by the Large Loan Single-borrower Parameters. DBRS considers it to be a methodology deviation when there is a rating differential of three or more notches between the assigned rating and the rating implied by the Large Loan Single-borrower Parameters; in this case, the assigned ratings reflect the qualitative loan-level factors that are not precisely captured in the quantitative results.

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.

The principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

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