DBRS Assigns Provisional Ratings to Citigroup Commercial Mortgage Trust 2013-SMP

DBRS has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-SMP (the Certificates), to be issued by the Citigroup Commercial Mortgage Trust 2013-SMP. The trends are Stable.

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

All classes have been privately placed pursuant to Rule 144A.

The Class X-A and Class X-B 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 collateral for the transaction consists of the fee and leasehold interest in a super-regional mall located in downtown Santa Monica, California. The fee interest relates to the department store anchors and all shop space except for three small tenants. The leasehold interest relates to the two parking structures and 1,805 sf of exterior store space located on the property’s perimeter at the base of one of the garages. The parking structures and exterior store spaces are secured by long-term revenue-sharing agreements with The Redevelopment Agency of the City of Santa Monica that expire in 2077. The property is directly owned by The Macerich Company (Macerich), and will be managed by an affiliate of the borrower. Proceeds from the loan will be used to reduce Macerich’s corporate credit line, which was utilized to complete the property’s $300 million redevelopment starting in 2008. The redevelopment included removal of the roof of the existing indoor mall, replacement of virtually the entire prior structure, first-generation tenant improvement allowances and the fee acquisition of the Bloomingdale’s parcel that was previously owned by Macy’s.

Santa Monica Place has an irreplaceable location on a 9.9 acre parcel located just two blocks east of the Pacific Ocean. In addition, it serves as the southern anchor to the Third Street Promenade, a heavily visited outdoor pedestrian-only shopping strip. The appraiser estimates land value at $137.4 million, which represents 57.3% of the loan amount. Sales performance of tenants at the property has been very strong since redevelopment. Sales for comparable tenants occupying less than 10,000 sf have increased from $686 psf in 2011 to $710 psf as of the T-12 period ending December 31, 2012. In addition, the two anchor tenants, Bloomingdale’s and Nordstrom, are performing well with T-12 sales of $34 million and $53 million, respectively.

Given that the loan is considered investment grade, the DBRS LTV is high at 89.7%. DBRS value is based on a cash flow that includes a significant $2.4 million occupancy cost mark down and utilizes a 7.00% cap rate. This cap rate is significantly higher than the appraiser’s implied cap rate of 4.54% and results in a 44.8% discount to the appraised value. In addition, the loan benefits from scheduled amortization that will reduce the loan balance by approximately 11% over the loan term, resulting in a DBRS Balloon LTV of 79.9%. Finally, the currently unleased 43,887 sf space on the third floor on top of Bloomingdale’s has no cash flow or value assigned to it. Based on discussions with the sponsor, a gross rental rate of approximately $50 psf seems achievable for this space. This would result in an additional $2.2 million of cash flow and $31.3 million of additional value based on the DBRS cap rate of 7.000%. This additional value would de-lever the loan to an 80.3% DBRS LTV and a 71.3% DBRS Balloon LTV.

As a result of the quality of the asset, a high-profile tenant roster with strong market demand, irreplaceable location along the Pacific Ocean, a strong sponsor, future upside with the continued refining of the tenant mix and low-leverage financing, the certificates backed by the $239.1 million first mortgage debt are provisionally assigned ratings between AAA (sf) and BBB (low) (sf).

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

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

The applicable methodology is CMBS Rating Methodology (January 2012), which can be found on our website under Methodologies.