DBRS Confirms Ratings of MCAP CMBS Issuer Corporation, Series 2014-1

DBRS Limited (DBRS) has today confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-1 (the Certificates) issued by MCAP CMBS Issuer Corporation, Series 2014-1 as follows:

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

All trends are Stable. DBRS does not rate the first loss piece, Class H.

The rating confirmations reflect that the transaction’s current performance remains in line with expectations since issuance in December 2014. The collateral consists of 32 fixed-rate loans secured by 40 commercial properties. At issuance, the transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.25 times (x) and 8.3%, respectively. As of the November 2015 remittance, 72.8% of the pool reported YE2014 cash flows, and for these loans, the WA DSCR and WA debt yield was 1.37x and 9.4%, respectively. As of November 2015 remittance, the pool has an aggregate balance of approximately $219.0 million, representing a collateral reduction 2.3% since issuance as a result of scheduled loan amortization. The transaction benefits from a concentration of loans secured by properties located in urban and suburban markets, representing 86.2% and 9.0% of the current pool balance, respectively. Additionally, no loans have IO periods and seven loans, representing 20.8% of the current pool balance, are seasoned loans with 13 to 29 months remaining prior to maturity. There is also a sponsor concentration, as eleven loans, representing 47.4% of the current pool balance, have related borrowers to one or more loans within the pool; however, these loans all have full or partial recourse to their respective borrowers. Transaction-wide, twenty-two loans, representing 60.0% of the current pool balance, have either partial or full recourse to their respective borrowers

As of November 2015 remittance, there are no loans in special servicing and no loans on the servicer’s watchlist. DBRS has highlighted one loan below that is expected to have a decline in performance in the near future.

The 1 & 20 Royal Gate Boulevard (Prospectus ID#3, 6.5% of the current pool balance) is secured by the fee interest in a 284,135 square foot (sf) industrial (67.5% of the net rentable area of the (NRA)) and office (32.5% of the NRA) building located in Vaughn, Ontario. The two-storey structure was originally constructed in 1990 and expanded to its current size in 1996. The subject comprises four industrial units and seven office units. As of June 2015, the property was 84.2% occupied with an average rental rate of $6.42 per square foot (psf), compared to 83.4% occupied with an average rental rate of $6.92 psf in July 2014. Two tenants, Delish Buhllar (2.8% of the NRA) and Silicor Materials (30.1% of the NRA) had lease expirations and vacated as of April 2015 and December 2015, respectively. Ideal Warehouse Innovations Inc. (Ideal Warehouse) (13.1% of the NRA) has recently signed a new leasing agreement, beginning in December 2015 through February 2020. The lease is on a triple net basis (NNN) with an annual base rental rate of $5.50 psf for the first four years, with contractual increases structured into the agreement. According to the September 2015 site inspection, the borrower was planning to provide tenant improvements to Ideal Warehouses’ space. After Silicor’s departure, the subject is expected to be 66.7% occupied with an average rental rate of $6.52 psf as of January 2016. According to Cushman & Wakefield, as of Q3 2015, industrial properties within the GTA North market had an average rental rate of $5.59 psf with a vacancy rate of 3.1%. The loan has partial recourse (50%) to the guarantor and benefits from a $2.0 million Letter of Credit (LOC) from the Toronto-Dominion Bank, provided by the borrower to mitigate rollover. The LOC may be reduced during the loan term pending the renewal or re-leasing of the rolling and vacant space at market rates, in addition to maintaining a minimum NCF DSCR of 1.25x. The borrower is not required to report updated financials until September 2015, which is the borrower’s financial year-end. At issuance, the loan had a DBRS UW DSCR and debt yield of 1.18x and 7.5%, respectively; however, this is expected to decrease in the near term given the departure of Silicor Materials.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool and loans on the servicer’s watchlist. The November 2015 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

Notes:
All figures are in Canadian 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 to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.