DBRS Confirms Rating of GS Mortgage Securities Corporation Trust 2012-SHOP

DBRS has today confirmed the ratings of GS Mortgage Securities Corporation Trust 2012-SHOP, Commercial Mortgage Pass-Through Certificates, Series 2012-SHOP, as follows, all with Stable trends:

-- 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 (high) (sf)

The collateral consists of a $625 million first mortgage loan secured by the fee and leasehold interests in two adjacent, connected malls in Las Vegas, Nevada, known respectively as the Grand Canal Shoppes and the Palazzo Shoppes. The rating confirmations reflect expected performance since issuance in August 2012, supported by the YE2012 DSCR of 2.56x.

Both properties are located at the northern end of the Las Vegas Strip, which has emerged as the dominant retail, restaurant and nightlife area in recent years. Located within the Venetian Resort Hotel Casino, Grand Canal Shoppes features nearly 500,000 sf of retail, restaurant, entertainment and office space. Included in the mall’s Venice motif are cobblestone walkways, painted sky ceilings, a life-sized replica of St. Mark’s Square and a quarter-mile canal offering visitors motorized gondola rides. The Palazzo Shoppes resides within the Palazzo Hotel and features approximately 315,000 sf of luxury retail, restaurant and nightclub space. It is currently the tallest building in Nevada, finished with a modern European design highlighted by a 60-foot glass dome lobby and a two-story fountain.

According to the March 2013 rent rolls, Grand Canal Shoppes was 96.4% occupied and Palazzo Shoppes was 84.0% occupied, combining for a total collateral occupancy rate of 92.4%. Both malls offer upper- to mid-scale luxury retail, along with several restaurants and nightclubs. Continued strong performance is a result of the subject’s draw to both domestic and international tourists, which have returned to Las Vegas in droves since the economic recession. According to the T12 sales report from March 2013, both malls are reporting impressive sales numbers. In-line stores occupying less than 10,000 sf had sales of $975 psf, while in-line stores occupying more than 10,000 sf had sales of $704 psf.

The one item of uncertainty surrounding the subject is the 85,000 sf anchor space at the Palazzo Shoppes, currently occupied by Barneys New York (Barneys). Though Barneys’ current lease expires in January 2018, the tenant is expected to execute its lease termination option in January 2015 due to low sales, which were $248 psf, according to the most recent T12 sales report. DBRS views the likely departure of Barneys, as a net positive for the subject as its space includes frontage along the Las Vegas Strip, which is valuable commercial space that can be converted into units for multiple users and, in turn, generate additional cash flow.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The March 2013 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

The applicable methodologies are CMBS Rating Methodology (January 2012) and North American CMBS Surveillance Methodology (November 2012), which can be found on our website under Methodologies.

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