DBRS Clarifies Placement of All Classes of Real Estate Asset Liquidity Trust, Series 2007-1 Under Review with Developing Implications

On February 28, 2017, DBRS Limited (DBRS) placed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2007-1 issued by Real Estate Asset Liquidity Trust, Series 2007-1 Under Review with Developing Implications. The following press release further clarifies the reasoning behind the rating actions.

DBRS has placed all classes Under Review with Developing Implications because of the large concentration of loans scheduled to pay out of the trust in the near term. As of the February 2017 remittance, 26 loans remain in the pool with an outstanding trust balance of $192 million. All but one of the remaining loans in the pool are scheduled to mature by April 1, 2017, with two loans (3.0% of the pool balance) outstanding past the respective maturity dates originally scheduled between December 2016 and February 2017 as of the February 2017 remittance. The senior Class A-2 bond had an outstanding balance of $136.0 million as of the February 2017 remittance. Based on the servicer’s estimates with regard to near-term payoffs for maturing and matured loans, DBRS believes it is likely those bonds will be repaid in full with the near-term remittance cycles, at which time the outstanding DBRS ratings for each will be discontinued.

The other 12 rated classes had a combined outstanding balance of $51.4 million and the unrated Class M bond had an outstanding balance of $4.3 million as of the February 2017 remittance. Given the possibility that some loans maturing in March 2017 and April 2017 could remain outstanding past maturity as the borrowers work toward finalizing replacement financing and the likelihood that the pool’s fourth-largest remaining loan, Sundance Pooled Interest ($23.4 million trust balance as of the February 2017 remittance), will not repay at the scheduled maturity date on March 1, 2017, the timing for payoff on those bonds is less certain and, as such, DBRS has also placed those bonds Under Review with Developing Implications to allow for the gathering of additional information to facilitate a full evaluation by DBRS. For additional information on the DBRS policy with regard to placing a rating Under Review, please see the Ratings Actions, Commentaries and Press Releases Global Policy dated May 30, 2016, on the DBRS website at www.dbrs.com.

The Sundance Pooled Interest loan (Prospectus ID#5; 11.9% of the current pool balance) is secured by an office property located in suburban Calgary, Alberta, and has been on the servicer’s watchlist for a low occupancy rate and a corresponding decline in cash flows in recent years. As previously mentioned, the loan is scheduled to mature on March 1, 2017. According to the servicer, the borrower has requested approval for a one-year extension in order to lease up the property, which was only 6.9% occupied as of the January 2017 rent roll. The servicer advises it is currently collecting all the necessary documents to review the request for loan modification and will provide an update on its recommendations as soon as possible. If the loan does not repay at maturity, that would constitute an event of default per the loan documents; as such, DBRS believes the loan will transfer to the special servicer in the near term. DBRS will closely monitor the loan repayments scheduled for the coming month and will gather information with regard to the workout status for the Sundance Pooled Interest loan, with further rating actions to be taken on the outstanding bonds in the near term.

For detailed information on the DBRS viewpoint with regards to the assets remaining, please see the loan-level commentary at ireports.dbrs.com. As additional information from the servicer becomes available, DBRS will update the commentary on that platform and will conduct a full assessment of the transaction within the next 90 days.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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 dbrs.com under Methodologies.