DBRS Morningstar Assigns Ratings to MSBAM Commercial Mortgage Securities Trust 2012-CKSV

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2012-CKSV issued by MSBAM Commercial Mortgage Securities Trust 2012-CKSV as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class CK at BBB (low) (sf)

Class CK carries a Negative trend because the underlying collateral continues to face performance challenges associated with the Coronavirus Disease (COVID-19) global pandemic. DBRS Morningstar has also placed Classes A-1, A-2, X-A, X-B, B, C, and D Under Review with Negative Implications, given the negative impact of the coronavirus global pandemic on the underlying collateral.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about October 23, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, at www.dbrsmorningstar.com. On April 24, 2020, DBRS Morningstar placed the ratings on its outstanding SASB transactions secured by retail properties Under Review with Negative Implications while MCR placed the ratings on its outstanding SASB transactions secured by retail properties Under Review Negative as the global shelter-in-place and mandatory retail closures related to the coronavirus have contributed to retail bankruptcies and anticipated vacancies in retail centers. For further information on these rating actions, please see the DBRS Morningstar press release dated April 24, 2020, at www.dbrsmorningstar.com and the MCR press release dated April 24, 2020, at www.morningstarcreditratings.com.

To assign ratings to this transaction, DBRS Morningstar considered both the impact of the updated NA SASB Methodology and its scenarios attributable to the ongoing coronavirus pandemic on the ratings.

Because of the coronavirus’ significant impact on retail performance, DBRS Morningstar first considered the application of the updated NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology” to arrive at a baseline result, which incorporated qualitative assumptions, capitalization rates, and loan-to-value (LTV) ratio sizing benchmark quality/volatility adjustments and excluded any potential changes in current or future expected asset performance resulting from the coronavirus.

DBRS Morningstar then overlaid scenarios incorporating additional reductions in net cash flow (NCF) to account for exposure to bankrupt or closed tenants. This resulted in stressed collateral value declines consistent with the projections in its “Global Macroeconomic Scenarios: September Update” published on September 10, 2020, on top of the baseline result to determine the impact of coronavirus-related changes in asset performance on the subject transaction on a tranche-by-tranche basis. For more information on these stress scenarios, please refer to the Coronavirus Impact Analysis section of this document. The global macroeconomic scenarios include a moderate decline of 15% for all commercial real estate (CRE), which acts as an average for all CRE property types. However, DBRS Morningstar expects a greater range of value decline for retail properties, ranging from 10% to 45% based on the type of tenant composition, exposure to bankrupt or challenged retailers, asset sponsorship, and asset location. DBRS Morningstar expects that lower-tier regional malls with in-line sales generally less than $300 per square foot (psf) will be the most affected.

LOAN/PROPERTY OVERVIEW
All classes rated by DBRS Morningstar, except for Class CK, in the MSBAM Commercial Mortgage Securities Trust 2012-CKSV, are backed by two separate promissory notes secured by two regional malls: Clackamas Town Center and Sunvalley Shopping Center. Class CK is only backed by the Clackamas Town Center loan. The Clackamas Tower Center loan has a current senior balance of $216.0 million and is schedule to mature on October, 1 2022. The Clackamas Tower Center loan is a fixed-rate loan that was structured with a 10-year term and is interest only throughout the term. The Sunvalley Shopping Center loan has a current senior balance of $162.7 million and is scheduled to mature on September, 1, 2020. The Sunvalley Shopping Center loan is a fixed-rate loan that was structured with a 10-year term with a 30-year amortization schedule The loans are not cross-collateralized or cross-defaulted. The servicer has reported no delinquency and debt service is paid through date is September 1, 2020, for both loans

The loan on the Clackamas Town Center is secured by the fee interest on 631,537 square feet (sf) of a 1.4 million sf, two-level, super-regional mall with an open-air lifestyle component in Happy Valley, Oregon, a southern suburb of Portland, Oregon. At issuance, the loan was sponsored by a 50/50 joint venture between General Growth Properties, Inc. (GGP) and Teachers’ Retirement System of the State of Illinois (TRS). The sponsor for this loan is currently a 50/50 joint venture between TRS and Brookfield Property Partners L.P. (Brookfield; rated BBB with a Negative trend by DBRS Morningstar) as Brookfield acquired the original owner, GGP. The subject was originally constructed in 1981 and has undergone several different renovations, with the most recent renovation in 2016.

The largest collateral tenants include Century Theaters, Forever 21, Barnes & Noble, REI, and H&M. The Century Theaters at the property closed its operation in March 2020 due to the coronavirus pandemic and there is currently no re-opening date. The Forever 21 store remains in operation at the mall, following the purchase of Forever 21 out of bankruptcy by Authentic Brands Group, Simon Property Group, and Brookfield Property Partners. H&M announced in October 2020 that the company plans to close 250 stores in 2021, but the company has yet to identify which stores will be closing. Noncollateral anchor tenants at the mall include JCPenney, Macy’s, Macy’s Home Store, and two anchor boxes formerly operated by Nordstrom and Sears. The noncollateral JCPenney filed bankruptcy in May 2020, but the store at Clackamas Town Center was not included in the most recent list of store closures in July 2020. The Sears at the Clackamas Town Center closed in November 2018 and a Dick’s Sporting Goods (Dick’s) is planning to open in the former Sears box on October 10, 2020, but it unclear if Dick’s will be leasing the entire footprint of the box vacated by Sears. The noncollateral Nordstrom at the Clackamas Town Center was listed among 16 permanent store closure per an announcement in May and this Nordstrom location is now currently closed.

At issuance, Clackamas Town Center had an occupancy rate of 89.1% and in-line sales of $432 psf for the trailing 12-month (T-12) period ended June 2012. Clackamas Town Center was 95.3% occupied as of the March 2020 rent roll and had in-line sales of $452 psf for the YE2019. The senior note annual debt service coverage ratio (DSCR) remained strong from the YE2013 to the YE2019 with the senior DSCR ranging from 2.49 times (x) from the YE2013 to 3.00x for the YE2016. The senior note annual DSCR for the T-12 period ending June 2020, which includes a three-month closure because of the pandemic, was still healthy at 2.72x compared to the YE2019 DSCR of 2.92x. The Clackamas Town Center was closed in March 2020 because of the pandemic but reopened with restrictions on May 23, 2020. The borrower submitted a coronavirus relief request in April 2020 for loans secured by 13 malls including the Clackamas Town Center. The request included waivers from trigger period resulting from DSCR ratio event and modification to the lender’s consent rights with respect to certain amendments, modifications, and terminations to leases, amongst other requests. The servicer has yet to indicate if any coronavirus relief requests have been implemented for this specific loan.

The loan on Sunvalley Shopping Center is secured by the fee and leasehold interests on 1.2 million sf of a larger 1.5 million sf, two-level, super-regional mall located in Concord, California, an inland suburban city of the Bay Area. The subject was built in 1967 and most recently renovated in 2016 with the opening of a new food court. The sponsor for the loan is a joint venture between The Taubman Realty Group Limited Partnership and trusts controlled by A. Alfred Taubman. The collateral was originally included in the $3.6 billion sale between The Simon Property Group and Taubman Realty, but the deal fell apart in June 2020 after the coronavirus pandemic impacted the retail sector. The ground lease lessor is Taubman Land Associates LLC, an affiliate of the sponsor, and the lessee is the borrower for this loan. The ground lease expires on October 29, 2061, with no extension options, and the annual ground rent payment under the ground lease is $1.6 million, increasing by 1.5% each year commencing January 1, 2014. The ground lease expense represented approximately 9.8% of YE2019 NCF at the property.

The Sunvalley Shopping Center collateral anchors are Macy’s, Macy’s Men & Home, and JCPenney. The JCPenney was originally included in a list of store closures, but JCPenney announce on July 17, 2020, that the location at the Sunvalley Shopping Center will remain open. Sears is a noncollateral anchor that is currently open and was not listed in the most recent list of Sears permanent store closures. At issuance, Sunvalley Shopping Center had an occupancy rate of 95.8% and in-line sales of $453 psf for the T-12 period ended June 2012. The Sunvalley Shopping Center was 93.6% occupied as of the May 2020 rent roll and had in-line sales of $393 psf for the YE2019. The subject’s senior loan DSCR has been trending down since it was at 2.19x in the YE2016. The senior note DSCR was at 1.37x for the YE2019. Per the servicer, the increases in real estate taxes and operating expenses have contributed to the decline in DSCR at the property. DBRS Morningstar also believes the opening of nearby The Veranda shopping center, an upscale outdoor shopping center that is owned by CenterCal, in late October 2017 and national tenancy bankruptcies impacted the property’s performance prior to the pandemic.

The Sunvalley Shopping Center was closed in March 2020 because of the pandemic but reopened with restrictions on June, 11, 2020. However, following a rise in positive coronavirus cases in the state of California, the governor ordered indoor malls, inclusive of the subject property, to close on July 13, 2020. The mall re-opened on September 4, 2020, and is currently only allowed to operate at 25% capacity, which means roughly only 2,500 people will be also inside.

DBRS Morningstar derived the respective NCFs using the latest reported servicer NCF with an adjustment, considering ongoing collateral performance including tenant movement and sales performance. The resulting aggregate NCF figure was $42.7 million and DBRS Morningstar applied a cap rate of 8.00% based on a blend of 7.75% for Clackamas Town Center and 8.25% for Sunvalley Shopping Center. Based on the DBRS Morningstar NCF and DBRS Morningstar blended cap rate, DBRS Morningstar concluded a pre-coronavirus DBRS Morningstar Value of $536.7 million, a variance of -25.5% from the appraised value of $720.0 million at issuance. The pre-coronavirus DBRS Morningstar Value implies an LTV of 65.7% compared with the LTV of 49.0% on the appraised value at issuance.

The cap rate DBRS Morningstar applied is in the middle of the range of DBRS Morningstar Cap Rate Ranges for retail properties, reflecting the suburban locations, leased fee interest of the Sunvalley Shopping Center, and market positions of the assets.

DBRS Morningstar made positive and negative qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis to account for cash flow volatility, property quality, and market fundamentals. The total qualitative adjustments for the Clackamas Town Center loan and the Sunvalley Shopping Center loan, equated to 1.00% and -0.50%, respectively. DBRS Morningstar also made other negative adjustment to account for the near-term maturity risk of the loans.

CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher NCF declines, resulting in stressed collateral value declines consistent with the projections in the “Global Macroeconomic Scenarios: September Update” (https://www.dbrsmorningstar.com/research/366542) to estimate the impact of coronavirus-related changes in asset performance on a tranche-by-tranche basis for the subject transaction. The scenarios included deducting cash flow for bankrupt retailers and increased vacancy expected at the asset to arrive at a coronavirus DBRS Morningstar Value under the moderate scenario, a 15.0% reduction from the pre-coronavirus DBRS Morningstar Value. Because of the more permanent value impairment resulting from the lost tenancy revenue stream, DBRS Morningstar’s analysis considered this value when assigning ratings.

Under the moderate scenario, the cumulative rated debt was insulated from loss.

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.

After applying the Coronavirus Impact Analysis, DBRS Morningstar had higher variances from the ratings assigned to Classes A-1, A-2, X-A, X-B, B, C, and D to the results of its LTV Sizing Benchmarks. The variation is warranted due to going concerns with the impact of the coronavirus on the collateral assets and, as a result, DBRS Morningstar placed these classes Under Review with Negative Implications.

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 Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2020) and North American CMBS Surveillance Methodology (March 6, 2020), which can be found on www.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 www.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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

DBRS Morningstar’s North American CMBS analytical team will continue to monitor the transaction to evaluate the increased risk factors related to the coronavirus pandemic. As information (e.g., updated property-level financials, rent rolls, new valuations for specially serviced loans, and workout and/or modification specifics, if applicable) becomes available, DBRS Morningstar will address the Under Review with Negative Implications rating actions over the near to moderate term. DBRS Morningstar typically endeavors to resolve an Under Review rating action within 90 days, but the circumstances surrounding these rating actions (i.e., the unknown length of the pandemic-related downturn) may result in a prolonged resolution period.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 696-6293