DBRS Confirms Ratings of MCAP CMBS Issuer Corporation, Series 2014-1

DBRS Limited (DBRS) confirmed its ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-1 (the Certificates) issued by MCAP CMBS Issuer Corporation, Series 2014-1 as follows:

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

All trends are Stable, with the exception of Classes F and G, which have changed to Negative from Stable to reflect the concerns regarding two loans secured by office properties in Calgary. The office market in Calgary continues to exhibit prolonged, significant increases in vacancy, reductions in rental rates and an overall lack of liquidity. Combined, these two loans represent 10.9% of the current transaction balance.

The rating confirmations reflect the overall stable performance exhibited since issuance. At issuance, the collateral consisted of 32 fixed-rate loans secured by 40 commercial properties. As of the September 2017 remittance, 28 loans remained in the pool with an aggregate principal balance of $181.9 million, representing a collateral reduction of 18.8% since issuance resulting from scheduled loan amortization and successful loan repayment. Based on the most recently reported year-end (YE) financials for loans, the transaction had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.39x and 9.2%, respectively, compared with the DBRS Term DSCR and debt yield of 1.25x and 8.3%, respectively.

The pool is concentrated by property type, as 12 loans, representing 46.5% of the pool, are secured by retail properties, six loans (26.4% of the pool) are secured by office properties and four loans (16.2% of the pool) are secured by industrial properties. The pool is also concentrated by loan size, as the top largest ten and top 15 largest loans represent 63.7% and 77.8% of the pool, respectively. Additionally, the largest loan, Michael Angelo's Market Place, represents 13.7% of the pool. To date, 21 loans (84.5% of the pool) have reported YE2016 financials, while five loans (11.0% of the pool) reported YE2015 financials and the remaining two loans (4.5% of the pool) have not yet reported financials. Based on the most recent cash flows available, the top 15 loans reported a WA DSCR of 1.35x, compared to the WA DBRS Term DSCR of 1.26x, reflective of 9.4% NCF growth over the DBRS issuance figures.

As of the September 2017 remittance, there was one loan (5.4% of the pool) in special servicing and three loans (11.6% of the pool) on the servicer’s watchlist. One of the watchlisted loans, the Stephenson Building is secured by the borrower’s fee interest in a 62,843 sf, Class B office building located in the Beltline District of Calgary. The loan was transferred to special servicing in August 2017, and has entered into a forbearance agreement, extending the loan maturity date to August 2019. The loan initially matured in February 2017; however, the borrower was unable to secure refinancing capital because of the collateral’s poor performance coupled with a weak lending environment. The three loans on the servicer’s watchlist were flagged due to increased vacancy (7.4% of the pool), upcoming loan maturity (2.7% of the pool) and insufficient insurance coverage (1.5% of the pool). However, the required coverage has since be obtained.

DBRS has provided updated loan-level commentary and analysis for larger and/or pivotal watchlisted loans and specially serviced loans in the transaction, as well as the top ten loans, in the DBRS commercial mortgage-backed securities (CMBS) IReports platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log into DBRS CMBS IReports at www.ireports.dbrs.com.

The rating assigned to Class X materially deviates from the lower rating implied by the quantitative results. Consideration was given for actual loan, transaction and sector performance where a rating based on the lowest-rated notional class may not reflect the observed risk.

Notes:
All figures are in CDN 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 methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies.

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

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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