DBRS Confirms Ratings 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 rating confirmations reflect the continued stable performance of the transaction. The transaction consists of a $625 million single mortgage loan, secured by the fee and leasehold interests in two connected super-regional malls in Las Vegas, Nevada; respectively known as the Grand Canal Shoppes and the Palazzo Shoppes. According to YE2013 reporting, the loan had a year-end debt service coverage ratio of 2.67 times (x), compared with 2.56x at YE2012 and 2.64x at issuance.

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 square feet (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 tallest building in Nevada, finished with a modern European design and highlighted by a 60-foot glass dome lobby and a two-story fountain.

According to the March 2014 rent rolls, Grand Canal Shoppes was 94.0% occupied and Palazzo Shoppes was 84.0% occupied, combining for a total collateral occupancy rate of 88.5%. While collateral occupancy has decreased from 92.5% as of March 2013, both malls offer upper- to mid-scale luxury retail, along with several restaurants and nightclubs. One of the largest tenants to vacate was The Act Nightclub, which vacated its 11,000 sf space in the Palazzo Shoppes in October 2013 after the nightclub was closed. The tenant’s lease did not expire until December 2021. Palazzo Shoppes also has a large 19,000 sf vacancy, which has been vacant since issuance. The space is located on the third floor of the subject and is located in a low foot-trafficked area, which has proven difficult to lease. According to the servicer, the borrower has had multiple leases for this space ultimately fall through.

The subject continues to benefit from both domestic and international tourists, who are the base for Las Vegas’ large tourism industry. According to the T-12 March 2014 sales report, both malls are reporting strong sales numbers as in-line stores occupying less than 10,000 sf had sales of $950 psf and in-line stores occupying more than 10,000 sf had sales of $721 psf. While these figures are down slightly from the previous year, they are still indicative of the subject’s desirability in the market.

Barneys New York (Barneys), who occupies 85,000 sf of anchor space at the Palazzo Shoppes, originally had a lease termination option as part of their lease, subject to not meeting certain sales volumes. According to the servicer, in January 2014 Barneys executed an extension and second amendment to their lease. As part of the execution, the lease termination option was deleted and the rent payable decreased to $38.93 psf effective February 1, 2014, and will further decrease to $31.86 effective February 1, 2015. Although the base rental rate has declined, the percentage rent structure will be increasing as part of this execution. Barneys lease expires January 31, 2019. According to the T-12 March 2014 sales report, Barneys generated sales of $263 psf.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The July 2014 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.