DBRS Confirms Ratings on RAIT 2015-FL4 Trust

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of notes issued by RAIT 2015-FL4 Trust:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-1 at BB (sf)
-- Class X-2 at B (high) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

DBRS has changed the trend on Class B to Positive from Stable. All other trends are Stable. DBRS does not rate the first loss piece, Class G.

The rating confirmations and trend change reflect the stable overall performance of the pool and the successful repayment of loans from the transaction. The transaction currently consists of 12 interest-only, floating-rate loans secured by 16 transitional commercial real estate assets, including office, retail, industrial and multifamily properties. According to the April 2017 remittance, there has been collateral reduction of 39.5% since issuance, as eight loans have left the trust since issuance, contributing to a principal paydown of $88.2 million. In the last 12 months, six loans have left the trust, providing increased credit support to the bonds. Based on YE2016 financial reporting for the individual loans, the pool has a weighted-average debt yield of 8.5%.

According to the April 2017 remittance, there are currently no loans on the servicer’s watchlist nor any delinquent or specially serviced loans. All the properties securing the loans are cash-flowing assets, and a majority of the properties are approaching stabilization, with viable plans in place to improve asset value. Select loans were initially funded with reserves, which may have included funds for capital improvements, tenant inducements, leasing commissions and operating shortfalls. In both its initial transaction analysis and in this review, DBRS took into account the potential effects of the in-place reserves. The largest loan is highlighted below.

The Monarch Portfolio loan (22.3% of the current pool balance) is secured by three retail properties across Georgia, and two ground leases totalling 466,906 square feet (sf), built between 1983 and 1989. At issuance, loan proceeds were used to fund upfront reserves, including approximately $4.4 million for TI/LCs to facilitate leasing at the subject. According to the March 2017 rent roll, the portfolio was 77.4% occupied with an average rental rate of $9.70 psf, showing steady improvement since issuance, when the occupancy rate was 71.3% with an average rental rate of $7.42 psf. The largest three tenants collectively represent 32.5% of the net rentable area (NRA) with leases scheduled to expire between February 2021 and June 2032. The largest tenant, Kroger, 13.7% of the NRA, renewed its lease by five years in March 2016, and the borrower executed a new 15-year lease with Zion Market for 11.0% of the NRA commencing in June 2017. Zion Market will pay a base rental rate of approximately $8.00 psf. According to the March 2017 servicer update, The Checkers pad and the Zion parcel paid off as a partial release, which has been reflected in the April 2017 remittance report, as the principal balance has been reduced by approximately $800,000 following the release. According to Reis, retail properties in the NE Gwinnet/I-85 submarket built in the 1980s reported average asking rent of $16.10 psf with average vacancy of 19.6%. Overall, retail properties throughout the submarket reported average rent of $17.73 psf with average vacancy of 12.7%

According to the April 2017 loan level reserve report, approximately $1.0 million of the TI/LC reserve balance has been used, with an ending balance $3.4 million. Based on the current vacancy across the property, this computes to over $30 psf in available dollars to lease the property to a stabilized occupancy rate. According to the YE2016 financials, the net cash flow was $2.3 million, indicative of a 7.7% debt yield.

The ratings assigned to the Class B and C notes materially deviate from the higher ratings implied by the quantitative results. 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 results that is a substantial component of a rating methodology. The deviations are warranted given the undemonstrated sustainability of loan performance trends.

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 dbrs.com under Methodologies.