DBRS Morningstar Confirms Ratings on Starwood Retail Property Trust 2014-STAR

DBRS, Inc (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-STAR issued by Starwood Retail Property Trust 2014-STAR as follows:

-- Class A at C (sf)
-- Class B at C (sf)
-- Class C at C (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)

None of the classes carry a trend.

The ratings confirmations reflect the expectation of sizable losses upon the resolution of the collateral loan. While the impact of the Coronavirus Disease (COVID-19) pandemic has been particularly acute for retail properties, the subject properties were distressed before the onset of the pandemic. All classes are designated as having Interest in Arrears, as cumulative interest shortfalls have exceeded $16.6 million. There are outstanding cumulative servicer advances of $15.6 million.

The transaction is collateralized by a $681.6 million floating-rate loan secured by three regional malls and one lifestyle center. The Mall at Wellington Green is a 1.3 million-square-foot (sf) indoor regional mall in Palm Beach County, Florida. At closing, it was anchored by City Furniture, Nordstrom on a ground lease, and noncollateral anchors Macy’s, Dillard’s, and JCPenney. The only anchor to vacate the property since issuance is Nordstrom, which closed in 2019. MacArthur Center is a 928,000-sf regional mall in downtown Norfolk, Virginia, anchored by Dillard’s on a ground lease and Regal Cinemas. Northlake Mall is a 1.1 million-sf regional mall in Charlotte, North Carolina. The collateral includes 540,000 sf of retail space, with Dick’s Sporting Goods and AMC Theatres as the original collateral anchor tenants, while other noncollateral anchors include Dillard’s, Macy’s, and Belk. Dick’s Sporting Goods vacated the property in February 2021. The Mall at Partridge Creek is a 626,000-sf lifestyle center in Clinton Township, Michigan, about 30 miles north of downtown Detroit. The property’s only remaining anchor is MJR Digital Cinemas, as Nordstrom vacated in September 2019, and Carson’s vacated in 2018 following its bankruptcy filing.

The loan was structured with debt yield hurdles attached to each of the two extension options. In 2017, after not meeting the debt yield hurdle, the sponsor was required to pay down the principal by $25.0 million and make monthly principal payments of $800,000 to satisfy a loan modification, which ultimately extended the loan to November 2019. Upon final maturity, the loan transferred to special servicing for maturity default. Previous discussions regarding a potential loan restructuring have given way to the borrower cooperating with an orderly transition of the properties to a receiver.

The sponsor’s inability to refinance the loan was largely a result of a steady and precipitous decline in net cash flow (NCF) as occupancy fell over the years, reaching 78% as of year-end 2021 from 96% at issuance. The servicer reported the aggregate NCF for the year-end 2021 reporting at $29.9 million, a -56.3% variance from the Issuer’s figure of $68.4 million at issuance. The property was reappraised in December 2020 for $210.6 million, which reflects an 80.4% decrease from the issuance appraisal of $1.07 billion.

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.

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.

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 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.

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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