DBRS Confirms 13 Classes of MSC 2011-C3 Mortgage Trust

DBRS has today confirmed 13 classes of Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by the MSC 2011-C3 Mortgage Trust. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-J at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B 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 BBB (low) (sf)
-- Class G at B (high) (sf)

This transaction closed in October 2011 and the collateral originally consisted of 63 fixed-rate loans secured by 76 multifamily, mobile home parks and commercial properties. At issuance, the portfolio had a balance of $1,491,988,764 and as of the October 2013 remittance report the total pool balance was $1,411,241,886, with 61 loans remaining in the pool. Since issuance, two loans have prepaid with yield maintenance, which, combined with loan amortization, results in a 5.4% collateral reduction. The pool benefits from relatively balanced metrics, with a high weighted-average debt service coverage ratio (DSCR) of 1.70 times (x) and a moderate debt yield of 10.8%, based on the current trust balance and the most recent year-end reporting available for the individual loans. As of the October 2013 remittance report, 100.0% of the pool was reporting YE2012 financials.

There are three loans in the pool, representing 14.3% of the outstanding pool balance, that are shadow-rated investment grade by DBRS.

As this transaction was closed more recently, some of the reported YE2011 and YE2012 net cash flow (NCF) figures are representative of annualized figures from partial-year statements and are not considered to be reflective of sustainable increases in cash flow. As such, for the purposes of this review, DBRS compared the borrower’s reported NCF figure for each loan with the DBRS underwritten NCF figure to assess the performance since issuance in addition to looking at other metrics, such as occupancy, for relevant changes. As no loans exhibited significant cash flow movement since issuance, DBRS modeled the loans with the DBRS underwritten NCF figure and the current outstanding trust balance for each loan.

As of the October 2013 remittance report, there were two loans on the servicer’s watchlist. The largest of these loans, Prospectus ID #28 (Texas Hospitality Portfolio) represents 0.9% of the pool and is secured by two hotel properties located in Kileen, Texas. The loan is on the servicer’s watchlist for a decline in the DSCR. At issuance, the combined occupancy rate was 82% with a DSCR of 1.70x and as of Q2 2013 the combined occupancy rate was 87% with a DSCR of 0.83x. Given the seasonality of hotels, the Q2 2013 figures are not viewed as a true representation of the properties performance; however, the servicer states that the subservicer reported that because of the properties proximity to Fort Hood military base, the U.S. government sequestration slowed the property performance from the uncertainty in budgets. Historical full-year occupancy rates and room revenues look to be relatively stable, and DBRS expects that this loan’s performance will look better with the reporting of full-year financials. DBRS will continue to monitor this loan.

The other loan on the watchlist is Prospectus ID #40 (One Park Ten), representing 0.6% of the pool, and is secured by a Class B, multi-tenant office property located along Park Ten Boulevard in San Antonio, Texas. The property was built in 1971, renovated in 2005 and consists of four two-story buildings situated on a 9.1 acre site. Open surface parking is available on all four sides surrounding the property. The subject has 157,373 square feet (sf) of net rentable area that is 61.6% occupied per the rent roll dated July 29, 2013. Since issuance, the former largest tenant, AECOM Technology Corporation (previously occupying 20,124 sf), vacated at their lease expiry in June 2012. According to the servicer, the borrower has experienced difficulty backfilling this space as it is the largest space at the property, also citing a soft San Antonio office market. The servicer reports that the borrower recently changed leasing agents, which has proven successful with three new leases signed in the past few months. While the leasing momentum is positive, these new leases only represent 1.3% of the NRA and it may take a while for the property to stabilize to the occupancy rate at issuance of 80%. The loan remains current and DBRS will continue to monitor this loan on a monthly basis for leasing updates and performance metrics.

For additional details on the DBRS viewpoint for this transaction, and for details on the largest loans in the pool and the loans on the servicer’s watchlist, please see the October 2013 Monthly Surveillance Report for this transaction, which will be published shortly.

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

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American 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.