DBRS Upgrades Five Classes and Confirms One Class of Asset-Backed Notes Issued by Selkirk 2014-3A

DBRS Limited (DBRS) upgraded the ratings of the following classes of Asset-Backed Notes (the Certificates) issued by Selkirk 2014-3A as listed below:

-- Class B to AA (sf) from AA (low) (sf)

-- Class C to A (sf) from A (low) (sf)

-- Class D to BBB (sf) from BBB (low) (sf)

-- Class E to BB (sf) from BB (low) (sf)

-- Class F to B (high) (sf) from B (low) (sf)

DBRS also confirmed the rating of the following class of the Certificates:

-- Class A2 at AAA (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of scheduled loan amortization, successful loan repayment and the overall improved performance of the remaining collateral in the pool since issuance. In the last 12 months, there was a collateral reduction of 5.0% as a result of eight loans repaying from the Trust, contributing $38.0 million in principal reduction to senior bonds. At issuance, the collateral consisted of 62 seasoned, fixed-rate loans secured by 65 commercial and multifamily properties. As of the November 2017 remittance, 43 loans remain in the pool with an aggregate outstanding principal balance of $514.3 million.

The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt-service coverage ratio (DSCR) and debt yield of 1.87 times (x) and 16.1%, respectively, based on the year-end (YE) 2016 financials. The top 15 loans experienced WA net cash flow growth of 38.4% over the DBRS issuance figures. As of the November 2017 remittance, there are no loans in special servicing but one loan on the servicer’s watchlist, representing 5.1% of the current pool balance. The loan has been flagged for upcoming tenant rollover risk as one of the largest tenants at the subject will be vacating at lease expiration. DBRS accounted for the elevated vacancy in its analysis for this loan, which is highlighted below.

The 750 East Pratt Street loan (Prospectus ID#4, representing 5.1% of the current pool balance) is secured by a 336,462 square feet (sf) office building located in Baltimore, Maryland. The loan was added to the watchlist as Exelon Business Services (Exelon), which occupies 45.4% net rentable area (NRA), provided notice to the borrower that it will be vacating its space upon lease expiration at YE2017. According to the March 2017 rent roll, the property was 100% occupied, as Exelon and Venable, LLP each occupy 45.4% of the NRA; cumulatively, they represent 90.8% of the NRA. The Venable,

LLP tenant has a lease that is scheduled to expire in December 2022, approximately two years prior to loan maturity in October 2024.

According to the servicer, the borrower recently signed a lease with Johns Hopkins University to assume approximately 59,000 sf of the former Exelon space (17.5% of the NRA). Johns Hopkins University will be paying a rental rate of $28 per square feet (psf) for its space, which is below the rental rate that Exelon is currently paying for its space at $34 psf. In addition, the borrower also executed a ten-year lease with KPMG for approximately 21,400 sf (6% of the NRA), with a commencement date in May 2018 at an undisclosed rental rate. According to the servicer, the subject’s occupancy rate will decline to 79% from 100% once both tenants take occupancy following Exelon’s departure from the subject.

As of November 2017, CoStar reported an average vacancy rate of 8.8% and average asking rental rates of $24.30 psf for comparable office properties within the Central Business District submarket, which is below the subject’s current average rental rate of $33.04 psf (which is skewed by the higher rate paid by Exelon). Despite the elevated vacancy rate associated with the upcoming tenant rollover, the subject’s occupancy historically remained at or near 100% since issuance, and the loan is structured with cash management in the event the DSCR declines below 1.20x. The property remains in overall good condition with no deferred maintenance noted, according to the March 2017 site inspection. As of YE2016 reporting, the DSCR was reported at 1.46x, remaining in line with the YE2015 DSCR of 1.48x. The loan was analyzed with a stressed net cash flow figure to reflect the upcoming tenant rollover risk.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

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 under Related Documents 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. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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