DBRS Finalizes Ratings on BAMLL 2012-CLRN

DBRS has today finalized the provisional ratings for the following classes of BAMLL Commercial Mortgage Securities Trust 2012-CLRN, Commercial Mortgage Pass-Through Certificates, Series 2012-CLRN (BAMLL 2012-CLRN). The trends are Stable.

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

Collateral for the transaction consists of a portfolio of 47 extended stay hotels located in 18 states throughout the U.S. In addition to the mortgage loan, there is $165 million of subordinate mezzanine debt outside of the trust. The loan sponsors purchased the properties in 2007 for $748 million and have subsequently spent $178.5 million on capital improvements, bringing their total cost basis to $926.5 million. The proceeds of the subject financing will be used, along with approximately $89.6 million of new cash equity, to pay off prior debt of $568 million in full. There are three loan sponsors, two of which are funds managed by Clarion Partners, and one of which is a direct subsidiary of the Abu Dhabi Investment Authority (ADIA). Each of the properties is operated as a Residence Inn by Marriott (Residence Inn) or Homewood Suites by Hilton (Homewood Suites).

The portfolio benefits from a significant portion of the allocated loan amount being secured by properties located in strong markets with significant barriers to entry. While only a few of the properties are located in what would be considered truly urban environments, many are located in desirable suburban markets with strong demographics and limited new supply expected in the near future. The portfolio does have a significant concentration of properties in smaller or weaker markets by property count, but these properties generate lower cash flow and have lower allocated loan amounts than the properties in superior locations.

Portfolio performance has improved significantly over the past few years. Revenue per available room (RevPAR) bottomed out in YE2009 at $70.52, which represented a 21.5% decrease compared to the previous high of $89.85 in YE2007. Through the trailing 12 months (T-12) period ending June 30, 2012, RevPAR has partially recovered to $80.83, representing a 14.6% increase from the cyclical low. Given the significant operating leverage, evidenced by historical expense ratios between 64% and 77% (inclusive of furniture, fixtures and equipment), cash flow declines through 2009 were much higher on a percentage basis than RevPAR declines. The peak to trough net cash flow decline through YE2009 was 50.0% before it rebounded by 41.2% through the T-12 ending June 30, 2012, period.

The loan has minimal default risk during the five-year fully-extended loan term, as the DBRS Term debt service coverage ratio is high at 2.02 times. DBRS value, a 29.5% discount to the appraised value, results in a modest DBRS loan-to-value (LTV) of 70.4% and low DBRS LTV through the BBB (low) rated class of 59.0%.

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

All classes are privately placed pursuant to Rule 144a. The Class X-1A, X-1B, X-2A and Class X-2B balances are notional. DBRS ratings on interest-only certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the interest-only certificate’s position within the transaction payment waterfall when determining the appropriate rating.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.