DBRS Confirms All Classes of MSC 2011-C3 Mortgage Trust

DBRS has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by the MSC 2011-C3 Mortgage Trust as follows:

-- 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)

The trends for all classes are Stable.

The rating confirmations reflect the overall stability of the pool, which has experienced collateral reduction of 7.9% since issuance as a result of three loans having prepaid with yield maintenance, combined with scheduled loan amortization. This transaction closed in October 2011 and the pool originally consisted of 63 fixed-rate loans secured by 76 properties. As of the October 2014 remittance, there are 60 loans remaining in the pool with an aggregate outstanding principle balance of $1,373,896,230. The pool has a weighted-average (WA) debt service coverage ratio (DSCR) of 1.80 times (x) and a WA debt yield of 12.0% based on the current balance and the most recent year-end reporting available for the individual loans. One loan in the pool is fully defeased and the top 15 loans (excluding defeasance) are reporting a WA DSCR of 1.85x and a WA debt yield of 10.3% as of YE2013 reporting. The top 15 loans have experienced 19.9% net cash flow (NCF) growth, on average, over the DBRS underwriting (UW) figures. As of the October 2014 remittance, there are eight loans on the servicer’s watchlist, representing 12.8% of the current pool balance; however, only five of the eight loans are currently flagged for performance-related issues. Another loan that is not on the watchlist has experienced a NCF decline of approximately 30.0% from the DBRS UW figure, and is highlighted below.

6300 Wilshire Boulevard (Prospectus ID#8, representing 3.9% of the current pool balance) is secured by a 21-story, 404,049 square foot Class A office building located in the Mid-Wilshire district, approximately ten miles west of Los Angeles in the Miracle Mile submarket. The YE2013 DSCR was reported at 1.23x, a decline from the DBRS UW DSCR of 1.76x, as a result of a drop in rental revenue for the past two years. This is reflective of a 30.0% NCF decline from the DBRS UW NCF at issuance. According to the June 2014 rent roll, the property is 78.0% occupied with major tenants including Advance Magazine Publications, Inc. (10.25% of net rentable area (NRA)); New York Life Insurance Company (8.73% of NRA); and GroupM Worldwide (5.60% of NRA). All of these leases extend well beyond the loan’s scheduled maturity date. Given that reported occupancy is flat from issuance, the decline in rental revenue seems to be attributable to new and renewal leases being executed at lower rental rates. DBRS will continue to monitor this loan for further cash flow decline.

The Texas Hospitality Portfolio (Prospectus ID#28, representing 1.0% of the current pool balance) is secured by two hotel properties located in Killeen, 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 YE2013, the combined occupancy rate was 71% with a DSCR of 0.87x. The sub-servicer has cited in the past that the U.S. government sequestration has slowed the property performance because of the uncertainty in federal budgets and the properties’ proximity to Fort Hood, a major military base. The annualized Q1 2014 DSCR was 1.19x with a corresponding occupancy of 75.0%; however this is not considered a true indication of property performance, given the inherent seasonality of hotels. In addition, the servicer has reported that the borrower expects to receive a one-time credit from the franchisor, InterContinental Hotels Group PLC, as a result of a revenue management error. This loan remains current and DBRS will continue to monitor.

At issuance, DBRS shadow-rated three loans as investment grade. DBRS has today confirmed that the performance of these individual loans, representing 14.5% of the current pool balance combined, remain consistent with investment-grade loan characteristics and has confirmed the shadow-ratings.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool and loans on the servicer’s watchlist. The October 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.

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

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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.