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

DBRS Limited (DBRS) 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 (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. The loan is secured by Independence Plaza, a mixed-use complex located in the desirable Tribeca neighbourhood of 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 loan is sponsored by Vornado Realty LP (Vornado) and Stellar. Sponsorship is considered strong given Vornado’s experience in the Manhattan market as well as its significant financial resources.

As at Q3 2017, the loan reported an annualized debt service coverage ratio (DSCR) of 3.28 times (x) compared with 3.34x as at YE2016 and the DBRS Term DSCR derived at issuance of 3.12x. As at the September 2017 rent roll, the residential portion of the collateral had an occupancy rate of 94.0%, which is in line with the YE2016 occupancy rate but slightly below the issuance occupancy rate of 96.7%. The borrower is in the process of renovating units currently being leased at below-market rents, transitioning them to fair-market rates. 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 Section 8: Enhanced Vouchers program (Section 8) rental rates and Landlord Assistance Program (LAP) rental rates.

At issuance, DBRS assumed a turnover rate of approximately 30 Section 8 apartments and ten LAP apartments annually. Currently, the subject’s unit mix contains 662 fair-market units, 352 Section 8 units and 310 LAP units. Fair-market units report an average rental rate of $5,065 per unit compared with $4,650 for Section 8 units and $1,709 for LAP units. At issuance, fair-market units had an average rental rate of $4,526 per unit compared with $3,846 per Section 8 unit and $1,494 per LAP unit. According to Reis, the West Village/Downtown submarket reported an average rental rate of $5,204 per unit and an average vacancy rate of 4.4% as at December 2017.

The commercial portion of the subject represents approximately 20.0% of the total net rentable area (NRA). According to the December 2017 rent roll, the commercial space was 96.1% occupied with an average rental rate of $36.29 per square foot (psf). In comparison, at issuance, the commercial portion was 100.0% occupied with an average rental rate of $23.41 psf, reflecting a 55.0% growth in the rental rate at the subject. The largest component of this space is a five-level 500-space parking garage representing 230,000 sf. Two tenants, representing 13.4% of the commercial unit NRA, have leases that expire in January 2018 and August 2018. DBRS has requested a leasing update and will monitor the tenant rollover closely.

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 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.

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.

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.

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