DBRS Morningstar Upgrades Two Classes of CFCRE Commercial Mortgage Trust 2011-C1

DBRS, Inc. (DBRS Morningstar) upgraded ratings on the Commercial Mortgage Pass-Through Certificates, Series 2011-C1 issued by CFCRE Commercial Mortgage Trust 2011-C1 as follows:

-- Class C to AAA (sf) from AA (sf)
-- Class D to A (sf) from BBB (high) (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)

All trends are Stable.

The upgrades reflect the four additional defeased loans, totaling $54.0 million, and the full repayment of five loans since November 2019. At issuance, the trust consisted of 38 fixed-rate loans secured by 67 commercial and multifamily properties with a total trust balance of $634.5 million. Per the November 2020 remittance report, the trust balance totaled $121.1 million consisting of 10 loans secured by 17 commercial and multifamily properties, representing an 80.9% collateral reduction since issuance. There are seven loans, representing 76.7% of the trust balance, that are defeased as of the November 2020 remittance report. The trust is in the process of winding down as all remaining loans are scheduled to mature in the first half of 2021. There are three nondefeased loans remaining in the trust and refinance risk is relatively low.

Walker Center (Prospectus ID#8 - 13.6% of the pool balance) is the largest remaining nondefeased loan and is secured by a 16-story office building with ground floor retail and an adjoining 10-level parking structure in the central business district of Salt Lake City, Utah. The June 2020 rent roll showed the property was 90.0% occupied with an average rent of $22.59 per square foot (psf), compared with the occupancy rate and average rent of 90.5% and $19.62 psf, respectively, at issuance. The largest tenants are Domo (23.5% of net rentable area (NRA); lease expiration of January 2029), Accounting, Tax & Advisory of Utah (12.4% of NRA; lease expiration of September 2027), and FedEx Office and Print Services (8.2% of NRA; lease expiration of August 2023). Upcoming lease rollover is limited to two tenants, representing 3.4% of NRA, with lease expirations prior to 2022. The property has been a sufficient performer in recent years with a year-end (YE) 2019 debt service coverage ratio (DSCR) of 1.84 times (x), up from the YE2018 DSCR of 1.29x and YE2017 DSCR of 1.41x. The loan maturity date is in April 2021 and the refinance risk is low given the loan amortization since issuance, long-term lease terms, and improving cash flow.

The second-largest nondefeased loan is the Amber Fields & Calico Apartments (Prospectus ID#25 – 6.3% of the pool balance), which is secured by two multifamily properties totaling 192 units in Fargo, North Dakota. The loan was placed on the servicer’s watchlist in December 2018 because of a low DSCR and a cash trap was activated in July 2020. The loan reported a trailing six-month (T-6) ended June 30, 2020, DSCR of 1.07x, compared with the YE2019 DSCR of 1.03x, YE2018 DSCR of 0.84x, and YE2017 DSCR of 1.05x. The June 2020 rent roll showed the properties were 92.2% occupied with an average rental rate of $775 per unit. Reis data dated September 2020 showed the properties’ occupancy rate was in line with that of the Fargo submarket. The loan is scheduled to mature in April 2021 and has moderate refinance risk given the soft multifamily market demand with nominal rental growth over the recent years, but the loan benefits from amortization since issuance.

Venture Tech Office Building (Prospectus ID#12 – 4.0% of the pool balance) is secured by a 70,212-sf office building in Woodlands, Texas. The loan was added to the servicer’s watchlist in June 2020 as the second-largest tenant, On Center Software (28.0% of NRA; lease expiration of January 2021), did not provide renewal notice 18 months prior to its lease expiration. The cash trap was activated in December 2018 and the loan is scheduled to mature in January 2021. The June 2020 rent roll showed the property was 100% occupied with an average rent of $19.41 psf; however, the occupancy rate is projected to decrease to 72.0% following the loss of On Center Software. Reis data from September 2020 for the submarket reported an average vacancy rate of 17.1%, implying the collateral had been outperforming competitors. The loan reported a strong T-6 ended June 30, 2020, DSCR of 1.90x, compared with the YE2019 DSCR of 1.37x and YE2018 DSCR of 2.28x. Refinance risk is moderate given the loss of the second-largest tenant ahead of loan maturity and the soft submarket demand for office space. The servicer noted the borrower requested a payoff quote in September 2020, which could mean takeout financing is imminent.

A model run was not completed for the subject review given the high concentration of defeased loans, which would completely cover Classes A-4, B, C, and approximately $6.5 million of Class D. The unrated Class E provides $21.1 million of support to Class D, representing a nondefeased credit enhancement level of 73.0%.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class X-A is an interest-only (IO) certificate that references 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 Morningstar.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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