DBRS Confirms All Ratings of LCCM 2014-909 Mortgage Trust

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates (the Certificates) issued by LCCM 2014-909 Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. The loan is secured by 909 Third Avenue, a 32-story, 1.3 million square foot (sf) Class A LEED Gold-certified office building located in the prestigious Plaza District submarket in Midtown Manhattan, New York. The loan is sponsored by Vornado Realty Trust, which has an ownership or management interest in over 20 million sf of office space in Manhattan. The property benefits from a concentration of investment-grade tenants, including the largest three tenants, who collectively occupy 66.4% of the net rentable area (NRA).

As at the October 2018 rent roll, the collateral was 99.1% leased, with an average base rental rate of $36.82 per square foot (psf), up from the October 2017 occupancy rate and average rental rate of 97.5% and $33.81 psf, respectively. The improvement over the 2017 occupancy rate is the result of an expansion for an existing tenant, AlixPartners LLP, which will take occupancy of additional space in November 2019, increasing its total footprint to2.4% of the NRA. In addition, Sard Verbinnen & Co., LLC executed a new lease to begin in November 2019 and will occupy 4.8% of the total NRA. According to Reis, the Plaza District submarket reported a Q3 2018 vacancy rate of 9.9% for office buildings of similar vintage, suggesting the subject is outperforming the market by a large margin with this leasing activity.

The subject’s largest tenant, the United States Postal Service, occupies 36.6% of the NRA through October 2023 and is currently paying a significantly below-market rental rate of $2.23 psf. At issuance, DBRS conservatively estimated a market rental rate of $30.00 psf gross for the entire space, which would result in approximately $9.9 million in additional rental revenue. Other large tenants include CMGRP Inc. (17.2% of the NRA, lease expires February 2028) and Forest Laboratories (12.5% of NRA, lease expires January 2027). Near-term rollover risk is moderate, with just one tenant representing 7.3% of the NRA in Boston Partners Global Investors, Inc. set to roll in the next six months, with a lease expiry in May 2019.

According to the Q3 2018 financials, the loan reported a debt service coverage ratio (DSCR) of 1.92 times (x), a slight increase from 1.87x at YE2017, but flat from the YE2016 figure of 1.93x. Cash flows in the last two years have been slightly depressed due to rent abatements and credits given to new and renewing tenants. DBRS estimates the DSCR will improve to approximately 2.31x once all rents and rent steps within the next six months, including recent leasing activity, are factored in. At issuance, the DBRS Term DSCR was 2.03x.

Classes X-A and X-B are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.
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Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

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