DBRS Confirms Ratings of BAMLL Commercial Mortgage Securities Trust 2014-IP

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-IP issued by BAMLL Commercial Mortgage Securities Trust 2014-IP as follows:

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

All trends are Stable.

These confirmations reflect the stable performance of the transaction since issuance. The loan is secured by Independence Plaza, a mixed-use complex located in Manhattan, New York. The subject comprises three 39-story residential towers for a total of 1,325 rentable units and 302,500 square feet (sf) of commercial space. The complex is located in the highly desirable Tribeca neighborhood, with proximity to office buildings and a sought-after public school system. The loan is sponsored by Vornado Realty L.P. (Vornado) and Stellar. Sponsorship is considered strong given Vornado’s experience in the Manhattan market as well as its significant financial resources.

As of the November 2016 rent roll, the residential portion of the collateral reported an occupancy rate of 93.8%, in line with the YE2015 occupancy rate of 93.6%, but slightly below the issuance occupancy rate of 96.7%. The drop in occupancy is not unexpected, as the borrower is in the process of renovating units currently being leased at below-market rents, transitioning them to the fair-market rate. The subject was built under the Mitchell-Lama Housing Program, which provided affordable housing to lower- and middle-income families. The property exited the program in 2004; however, a large portion of the units are still operating under the Section 8 Enhanced Voucher program (Section 8) and Landlord Assistance Program (LAP) rental rates. At issuance, a turnover rate of approximately 30 Section 8 apartments and ten LAP apartments was assumed annually. Since May 2014, 49 fair-market units have been transitioned, while there has been a decrease of 55 Section 8 units and 33 LAP units. The average rental rate for the fair-market units was $4,981 per unit, compared with $4,382 per Section 8 unit and $1,687 per LAP unit. According to Reis, the Tribeca submarket reported an average rental rate of $4,348 per unit and an average vacancy rate of 3.8% as of December 2016.

The commercial portion of the subject represents approximately 20.0% of the total net rentable area (NRA). As of November 2016, it was 96.1% occupied with average rental rates of $34.15 per square foot (psf). In comparison, at issuance, the commercial portion was 100% occupied with average rental rates of $23.41 psf. The largest component of this space is a five-level, 500-space parking garage representing 230,000 sf. Other tenants include Shopwell, Inc., a food emporium (7.2% of the NRA, lease expired January 2016), Board of Education (6.1% of NRA, expiring August 2018) and Imagine Flagship, LLC (3.3% of NRA, expiring May 2025). DBRS has requested an update for the expired tenant and is awaiting response from the servicer.

According to the most recent financials, the loan reported a YE2016 debt service coverage ratio (DSCR) of 3.34 times (x), compared with the YE2015 DSCR of 3.14x and the YE2014 DSCR of 3.44x.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.