DBRS Confirms Ratings of MSC Mortgage Securities Trust, 2012-C4

DBRS, Inc. (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C4 issued by MSC Mortgage Securities Trust, 2012-C4:

-- 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-S 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 BB (sf)
-- Class G at B (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)

All trends are Stable. DBRS does not rate the first lost piece, Class H.

The collateral consists of 38 fixed-rate loans secured by 77 commercial properties. As of the January 2015 remittance report, the pool has a balance of approximately $1.06 billion, representing a collateral reduction of approximately 3.5% since issuance in March 2012. Overall, the pool has reported stable performance, with the transaction reporting a weighted-average debt service coverage ratio (DSCR) and debt yield of 1.80 times (x) and 12.7%, respectively, according to Q3 2014 reporting.

At issuance, DBRS shadow-rated two loans, representing 15.0% of the current pool balance, as investment grade. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

As of the January 2015 remittance report, there are two loans in special servicing and two on the servicer’s watchlist, representing 4.2% and 1.9% of the current pool balance, respectively. The specially serviced loans are highlighted below:

The Independence Place – Fort Campbell loan (Prospectus ID#18) is secured by a multifamily property in Clarksville, Tennessee, which serves primarily as military housing for servicemen and women of Fort Campbell. Fort Campbell is located on the Kentucky/Tennessee border, with portions of the base within each state. There is a total of approximately 30,000 soldiers and civilians employed at the base. Historically, 98.0% of the residents at the subject have been affiliated with Fort Campbell. The loan transferred to special servicing in October 2013 after the borrower ceased making debt service payments. The loan remains outstanding for the October 2013 and all subsequent debt service payments. The property is now REO, with Elmington Property Management (Elmington) serving as the receiver. Elmington has reportedly repaired the subject’s relationship with the Fort Campbell Housing Group to encourage troop referrals. According to the servicer, the property was 72.0% occupied at YE2014, down from 82.7% in April 2014. In July 2014, 1,900 troops were deployed for Afghanistan, potentially explaining the decrease in occupancy at the subject. The most recently reported financials from Q1 2014 are indicative of a DSCR of 0.77x. According to the servicer, the resolution strategy is to sell the asset; however, the determination of timing on when to go to market is difficult to predict and is contingent upon troop deployment and possible force reductions or increases. The property received an updated appraisal in May 2014, which valued the property at $25.4 million ($113,392/unit) compared with $30.6 million ($134,210/unit).

The Hilton Springfield loan (Prospectus ID#15) is secured by a full-service hotel in Springfield, Virginia, approximately 14 miles southwest of the Washington D.C. central business district. The loan was originally added to the servicer's watchlist because of a YE2013 DSCR of 0.46x, the result of a 53.0% occupancy rate. The loan later transferred to special servicing in April 2014 for a non-monetary default after the borrower negotiated a new 15-year franchise agreement with Hilton Hotels (Hilton) without lender consent. The original franchise agreement was set to expire in 2017; however, the borrower was able to secure a new agreement at a lower rate, as Hilton is planning to open two new hotels in the area. As a result of the low DSCR, the loan is being cash managed, creating a financial strain on operations. The loan was ultimately modified in November 2014 with terms that include a $1.3 million injection of fresh equity from the borrower to pay for all servicing fees and to fund a portion of a property improvement plan (PIP) requirement. The remaining $1.6 million PIP requirement will be funded from the furniture, fixture and equipment (FF&E) reserve ($556,166) and monthly FF&E collections. The PIP reserve will serve to upgrade the exterior of the hotel, including roofing and updating the interior common areas. As of August 2014 STR report, the trailing 12-month (T-12) occupancy was 62.8%, Average Daily Rate (ADR) was $115.12 and Revenue per Available Room (RevPAR) was $72.28. All figures compare similarly with the subject’s competitive set, which contains eight other hotels. According to the borrower, government spending cuts and high competition have negatively affected occupancy and nightly rates; however, the borrower desires to shift the hotel’s target market to cater more toward transient business, which may potentially improve revenue. While the added supply to the market is of concern, DBRS views the recent injection of equity by the borrower as a positive. According to the special servicer, this loan will be returned to the master servicer as a corrected mortgage loan.

The DBRS analysis included an in-depth review of the top 15 loans, the shadow-rated loans, the specially serviced loan and loans on the servicer’s watchlist, which collectively represent approximately 79.7% of the current pool balance.

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 January 2015 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 (January 2015), which can be found on our website under Methodologies.