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

DBRS Limited (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)

All classes have ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) ratings.

The rating confirmations reflect the expectation of sizable losses upon the resolution of the underlying loan, which is collateralized by a retail portfolio and has been in special servicing since a maturity default in 2019. The ratings on all classes mirror those assigned by DBRS Morningstar in 2020, except for Class A, which was initially rated B (sf) before a downgrade in 2021 to the current rating of C (sf). The downgrade was reflective of an updated appraisal amount of $210.6 million for the portfolio as of December 2020, down from the most recent appraised value available when ratings were assigned of $366.7 million, which was dated March 2020. The most recent value provided since that time showed a small decline to $207.0 million as of February 2021, with no updated values finalized by the special servicer since. Based on haircuts to the appraiser’s value estimates, DBRS Morningstar expects liquidated losses through the Class A certificate. There are interest shortfalls on all classes, with the cumulative amount outstanding at $44.2 million as of the April 2023 remittance.

The underlying loan is 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. The subject is anchored by City Furniture and noncollateral anchors Macy’s, Dillard’s, and JCPenney. At issuance, Nordstrom was in place on a ground lease but 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 initially matured in 2017, with extension options available that were subject to debt yield hurdle requirements; however, those could not be met, and as a result the sponsor was required to make a principal paydown of $25.0 million and monthly principal payments of $800,000 to satisfy a loan modification to extend the maturity to 2019. With the paydown amounts, the loan balance was ultimately reduced by approximately $44 million. Despite the deleveraging, the borrower was still unable to repay at the extended maturity given sustained occupancy and cash flow declines for the portfolio, and the loan was transferred to special servicing.

The initial resolution strategy considered another loan modification, but ultimately the borrower agreed to an orderly transition of the properties to a receiver that will work toward stabilizing the assets prior to disposition. One of the collateral malls, MacArthur Center, has since been listed for sale, and the special servicer reports discussions are ongoing with interested buyers. The timing of the sale for the remaining properties has yet to be determined.

As of the April 2023 remittance, the principal balance of the loan totaled $681.6 million, with outstanding servicer advances and other amounts bringing the total trust exposure to $728.9 million. According to the servicer, there is $54.6 million held in the cash management reserve that can be used for capital expenditures, operating expenses, repay advances, and other property expenses and serves as additional cash collateral.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 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 under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023;
https://www.dbrsmorningstar.com/research/410191)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

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