DBRS Changes Trend on, Confirms Two Classes of GE Commercial Mortgage Corporation, Series 2007-C1

DBRS Limited (DBRS) changed the trend on two classes of the Commercial Mortgage Pass-Through Certificates, Series 2007-C1 issued by GE Commercial Mortgage Corporation, Series 2007-C1, to Stable from Negative. In addition, the classes have been confirmed as follows:

-- Class A-M at BB (low) (sf)
-- Class A-MFX at BB (low) (sf)

The rating confirmations and Stable trend assignments reflect DBRS’s outlook for the remaining seven loans in the transaction, particularly for the two largest loans remaining in the pool, which collectively represent 65.6% of the pool balance in Prospectus ID #4 – Skyline Portfolio (39.5% of the pool balance) and Prospectus ID #7 – JP Morgan Portfolio (26.1% of the pool balance). As of the September 2018 remittance, there are seven of the original 197 loans remaining in the pool. Since issuance, the pool has experienced collateral reduction of 87.0% as a result of scheduled amortization, successful loan repayments and principal recoveries and losses from loans liquidated out of the pool. To date, 55 loans have been liquidated, for a total realized loss of $424.3 million since issuance.

DBRS previously assigned Negative trends to the two rated classes to reflect concerns with the outlook for the former largest loan in the pool, Prospectus ID #1 – 666 Fifth Avenue. That loan had previously been modified with an A/B split and DBRS was expecting a full loss of the B note, with a high likelihood of a partial loss on the A note, as well. However, that loan was repaid with the August 2018 remittance, with the B note written off as a 100% loss and the A note repaid in full. In addition to this significant paydown, there have also been three recent liquidations that collectively resulted in losses of $16.5 million, wiping out the remainder of the unrated Class D certificates and reducing the balance of the unrated Class C certificates by approximately 50%. In general, those losses were in line with DBRS’s expectations.

The Skyline Portfolio loan, which is now the largest remaining loan in the pool, is secured by a portfolio of eight Class A and Class B office properties in Falls Church, Virginia. The portfolio has been real estate owned (REO) since late 2016 after the borrower defaulted in April 2016 and the loan was transferred to special servicing for the second time. Per the September 2017 appraisal, the portfolio was valued at a total of $301.9 million, an increase over the last valuation from November 2016, when the as-is value was estimated at $201.0 million. The portfolio has been occupancy-challenged for several years, suffering from a soft submarket and falling government-sector demand. The special servicer is focusing efforts toward selling the One Skyline Tower property (39.1% of the appraised value for the portfolio) and plans to evaluate strategies for the remainder of the portfolio when that transaction is finalized. Based on the appraised value, DBRS expects a loss severity in excess of 70% will be realized at liquidation.

The second-largest loan, JP Morgan Portfolio, was previously secured by two properties in a 40-story, Class A office property and accompanying parking garage located in Phoenix, Arizona, and a 17-story office property in Houston, Texas. A partial loan sale was completed in March 2018 and the Phoenix property was released, with only the Houston property remaining, which has been REO since February 2018. As part of the partial loan sale, a $62.1 million paydown was applied to the trust with the April 2018 remittance. The most recent appraisal obtained for the Houston property estimated an as-is value of $52.0 million as of December 2017. Given the remaining trust exposure of approximately $139.5 million for this loan as of the September 2018 remittance, DBRS assumed a loss severity in excess of 69.0% for this review.

As of the September 2018 remittance, there were a total of six loans in special servicing, representing 78.2% of the current pool balance. Two of the loans were transferred in early 2017, whereas the reminder of the loans have been in special servicing at one point or another since as early as 2010. Five of the six assets, representing 38.8% of the pool balance, are REO, with the remaining specially-serviced loan currently in the process of foreclosure.

The only non-specially serviced loan, Wellpoint Office Tower (21.8% of the pool balance), is secured by a Class A office building in Woodland Hills, California, within the Los Angeles MSA. The property is fully occupied by a single tenant in Anthem Blue Cross of California, but that tenant is expected to vacate at lease expiry in December 2019. The lease expiration date is coterminous with the scheduled maturity date, and as such, DBRS expects the loan will default on or before that date unless a buyer is secured or a new lease is signed within the near term. The loan was analyzed with a stressed cash flow scenario for this review and will be monitored closely for developments. For additional information on this loan and the two largest loans in special servicing, please see the loan commentary in the DBRS Viewpoint platform, for which information has been provided below.

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

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Skyline Portfolio (Prospectus ID #4, 39.3% of pool)
-- JP Morgan Portfolio (Prospectus ID #7, 26.0% of pool)
-- Wellpoint Office Tower (Prospectus ID #10, 21.7% of pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

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.

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.