DBRS Confirms Ratings of Five Classes of BAMLL 2011-FSHN

DBRS has confirmed the ratings of five classes of Banc of America Large Loan 2011-FSHN as follows:

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

All trends are Stable.

The collateral consists of a $410 million fixed-rate loan originated in 2011 and secured by Fashion Centre at Pentagon City (Fashion Centre), a super-regional mall located in Arlington, Virginia. The borrower is a joint venture primarily between Simon Property Group, L.P. (Simon) and Institutional Mall Investors LLC (IMI), which is owned by an affiliate of Miller Capital Advisory, Inc. and California Public Employees Retirement System (CalPERS). The loan is interest only over the entire 10-year term.

The mall anchors are Nordstrom (non-collateral tenant) and Macy’s, which owns its own space and operates on a ground lease that expires in 2020 with 12, five-year renewal options to extend the lease through 2080 with no increase in fixed rent. The in-line tenancy includes typical mall retailers including The Gap, Forever 21, Victoria’s Secret and Banana Republic and also features higher-end shops in Coach, Bare Escentuals, Williams Sonoma, A/X Armani Exchange, Hugo Boss and BCBG. Fashion Centre’s major competitor is Tysons Corner Center (Tysons), the sixth largest mall in the country, with four anchors and over 300 in-line shops. Tysons is located approximately 12 miles from the subject property and has historically enjoyed exceptional sales.

Fashion Centre benefits from a densely populated trade area where disposable income levels are high, significantly outpacing the national average. As of March 2012, the Bureau of Labor and Statistics reported an unemployment rate of 3.5% for Arlington County, and Arlington County Planning Division reports an estimated median household income of $103,900 for the county in 2011. According to Reis, there was an average vacancy rate of 5.7% for anchored space in the subject’s Arlington/Alexandria submarket and an average vacancy rate of 6.9% for non-anchored space as of Q1 2012. Although these figures are for much smaller shopping centers and do not include statistics for regional malls, they are indicators of a relatively healthy local retail market.

The servicer has calculated a debt service coverage ratio (DSCR) of 2.28 times (x) for YE2011, which is in line with the issuer’s underwritten DSCR of 2.25x. Overall sales per square foot (psf) at the property have increased by 5.68% to $567 psf at YE2011 from YE2010, when sales averaged $537 psf. Since issuance, occupancy has remained stable, with only a slight drop from 99% at origination to 97% in March 2012 (including the non-collateral Nordstrom anchor). This small decline is attributable to the departure of seven small tenants. DBRS had initially expected most of these tenants would vacate, because of poor performance at the mall or space conversion by the mall operator. DBRS does not anticipate these spaces will be difficult to backfill in the near term given the property’s strong sales and ability to maintain occupancy at or near 99% over the past several years.

For the purposes of this review, DBRS applied a haircut, consistent to the haircut used at issuance, to the YE2011 net cash flow figure to capture the impact of any short-term cash volatility over the near term, deriving a healthy term DRBS DSCR of 2.20x. The DBRS net cash flow figure implies a loan-to-value ratio of 72.4%, based on a cap rate of 7.75%, which is considered conservative given the irreplaceable nature of the subject and the limited availability and demand for trophy assets of its kind in today’s market.

For further information, please see the July 2012 Monthly Surveillance Report for this transaction, which will be published shortly on the DBRS website at www.dbrs.com.

Notes:

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

All classes are privately placed pursuant to Rule 144a.

These ratings are endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (May 2011), which can be found on our website under Methodologies.