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.

This transaction consists of a $410 million fixed-rate, interest-only loan secured by a 601,633 sf portion of the 821,048 sf upscale super-regional mall, Fashion Centre at Pentagon City (Fashion Centre), located in Arlington, Virginia. The property is part of a mixed-use development site that includes a non-collateral Ritz Carlton hotel and an attached 170,000 sf class A office building. The property has performed as expected since issuance, with a YE2012 DSCR of 2.32x, compared to 2.24x at origination. As a result, DBRS has confirmed all classes.

The mall was constructed in 1989 and is anchored by a non-collateral Nordstrom and a Macy’s department store. Macy’s owns its 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 property has over 140 in-line retailers, offering a variety of mid-scale to luxury tenants, including Apple, The Gap, Forever 21, Victoria’s Secret, Banana Republic, Coach, Hugo Boss, Cole Haan and Armani Exchange. Overall mall occupancy has remained stable at 98.8% in April 2013, compared to 97% in March 2012. The mall, including anchor tenants, exhibits strong overall sales per square foot (psf), increasing by 3.28% to $587.79 psf at YE2012, from $569.11 psf at YE2011.

The property’s continued strong performance is a reflection of its desirable location in a densely populated trade area, with high levels of disposable income that significantly outpace the national average. As of May 2013, the U.S. Bureau of Labor and Statistics reported a preliminary unemployment rate of 3.7% for Arlington County, while the Arlington County Planning Division reported an estimated median household income of $103,900 for the county in 2013. According to Reis, as of Q1 2013 there was an average vacancy rate of 6.5% for anchored space in the subject’s Arlington/Alexandria submarket and an average vacancy rate of 6.9% for non-anchored space. 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 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).

For the purposes of this review, DBRS applied a haircut, consistent to the haircut used at issuance, to the YE2012 NCF figure in order to capture the impact of any short-term cash volatility over the near term, deriving a healthy term DBRS debt service coverage ratio (DSCR) of 2.24x. The DBRS net cash flow figure implies an LTV of 70.9%, 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.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, which provides additional information on the DBRS viewpoint for this transaction. The July 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.

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

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