DBRS Morningstar Confirms All Classes of WP Glimcher Mall Trust 2015-WPG, Removes Five Classes from Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-WPG issued by WP Glimcher Mall Trust 2015-WPG and removed them from Under Review with Negative Implications:

-- Class PR-1 at BBB (low) (sf)
-- Class SQ-1 at BBB (low) (sf)
-- Class PR-2 at BB (sf)
-- Class SQ-2 at BB (low) (sf)
-- Class SQ-3 at B (low) (sf)

These classes are collateralized by subordinate debt on the two retail assets in this transaction, Scottsdale Quarter (the SQ classes) and Pearlridge Center (the PR classes). All five classes now carry Negative trends.

In addition, DBRS Morningstar confirmed the ratings on the following pooled classes:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X at A (sf)
-- Class C at A (low) (sf)

The trend on Class A remains Stable. The trends on Classes B, X, and C remain Negative because of the performance challenges to the underlying collateral associated with the lingering effects of the Coronavirus Disease (COVID-19) pandemic. DBRS Morningstar notes that the servicer reported better-than-expected cash flow figures for both collateral assets in 2020, supporting the Stable trend on Class A.

The Negative trends are reflective of DBRS Morningstar’s concerns not only with the challenges facing regional malls in general, but also with one of the sponsors of the underlying loans, Washington Prime Group (WPG), which has been reporting revenue declines for several years and owns a portfolio of retail properties primarily located in secondary markets. On June 13, 2021, WPG announced a Chapter 11 bankruptcy filing and cited challenges faced during the coronavirus pandemic as contributing to the filing. The company emerged from bankruptcy in October 2021 and WPG’s indirect 51% interest in the borrower is now owned by a newly-formed Delaware limited liability company named Washington Prime Group LLC (“Reorganized WPG”), of which approximately 70% of equity interests will be owned by affiliates of Strategic Value Partners, LLC.

This transaction is backed by portions of the senior debt and all of the subordinate debt secured by the fee-simple interest in Scottsdale Quarter, a 541,386-square-foot (sf) mixed-use retail center in Scottsdale, Arizona, and a $105.0 million loan on a portion of the fee and leasehold interest in Pearlridge Center, a 1.14 million-sf super-regional mall in Aiea, Hawaii, the state’s largest enclosed shopping center. The sponsor for both loans is WPG, which is the successor sponsor to Glimcher Realty Trust, and O’Connor Capital Partners. Both properties are managed by WPG.

The individual whole loans on each asset are not cross-collateralized or cross-defaulted. Of the $165.0 million whole loan secured by Scottsdale Quarter, $95.0 million is senior A note debt, with a total of $13.0 million in subordinate B note debt and $57.0 million in subordinate C note debt. Of the senior A note debt for Scottsdale Quarter, $25.0 million in pari passu proceeds were contributed to this trust, with the remaining A note debt split pari passu across two conduit transactions in JPMBB Commercial Mortgage Securities Trust 2015-C30 and COMM 2015-CCRE25 Mortgage Trust, the latter of which is not rated by DBRS Morningstar. The $25.0 million in pari passu A note debt and the $13.0 million B note back the pooled classes, and the $57.0 million in C note debt backs the rake SQ classes in the subject transaction. Of the senior A note debt for Pearlridge Center, $10.4 million in pari passu proceeds were contributed to this trust, with the remaining A note debt split pari passu across the same two conduit transactions mentioned above. The $10.4 million in pari passu A note debt and the $48.6 million B note back the pooled classes, and the $46.0 million in C note debt backs the rake PR classes in the subject transaction.

The Pearlridge Center loan served to refinance existing debt, return $47.0 million of equity to the sponsor, and create a new joint venture, with Glimcher Realty Trust (now WPG) having a 51% share and O’Connor Capital Partners acquiring a 49% share. The subject property is on Oahu, approximately nine miles northwest of Honolulu. The December 2020 rent roll showed that the collateral was 91.5% occupied. The property is anchored by Macy’s (18.4% of net rentable area (NRA); lease expiration in February 2027) and formerly by Sears, which closed its doors in April 2021. Other large tenants include Bed Bath & Beyond (7.3% of NRA; lease expiration in January 2021, which appears to have renewed) and Pearlridge Mall Theatres (4.5% of NRA; lease expiration in December 2022), which reopened in August 2020 after being forced to close amid the pandemic. The property benefits from its customer base, comprising mainly the local populace rather than the tourists that drive traffic to other malls in Hawaii. The property has maintained a stable performance to date; as of the most recent financial reporting, the loan reported a YE2020 whole-loan debt service coverage ratio (DSCR) of 2.44 times (x), down slightly from YE2019 and YE2018 whole-loan DSCRs of 2.82x and 2.72x, respectively. The loan was previously monitored on the servicer’s watchlist in May 2020 after the borrower requested coronavirus-related relief but was quickly removed after the special servicer denied the request based on the property's strong cash position for the past several years.

The Scottsdale Quarter loan served to refinance existing debt and recapitalized a joint venture with WP Glimcher and O’Connor Capital Partners. Additionally, the sponsor invested $16.6 million of cash equity with the recapitalization. The property is a Class A, mixed-use, open-air lifestyle center with office space, 17 miles northeast of Phoenix in the affluent Kierland neighborhood of north Scottsdale. The subject property is in a secondary market but has a lifestyle center format and a better mix of retailers compared with others in WPG’s portfolio.

Scottsdale Quarter is secured by a 541,386 sf Class A, mixed-use, retail and office center in Scottsdale, Arizona. The loan has been returned to the master servicer as a corrected mortgage after being transferred to special servicing in May 2021 when WPG filed for bankruptcy and several tenants vacated at the end of their lease terms, which brought occupancy down to 74.4% as of September 2021. There is additional near-term rollover risk as the second-largest retail tenant, Pottery Barn (2.9% of NRA), had a lease expiration in January 2022 (although it remains listed on the mall’s directory) and the second-largest office tenant, Maracay Homes (3.5% of NRA), has a lease expiration in June 2022. In December 2021, Landmark Theaters backfilled the space of former tenant IPIC (8.2% of NRA), increasing occupancy to 82.6%. According to Reis, retail properties in the North Scottsdale/Paradise Valley submarket reported Q4 2021 average rental and vacancy rates of $22 per sf and 10.6%, respectively, while office properties in the Scottsdale submarket reported average rental and vacancy rates of $24 and 19.4%, respectively. Despite the challenges faced by the property, the loan reported a YE2020 DSCR of 2.04x on net cash flow that was 11% below the issuance level.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X is 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 methodology is: North American CMBS Surveillance Methodology (March 26, 2021), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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.

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

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