DBRS Finalizes Provisional Ratings on Houston Galleria Mall Trust 2015-HGLR

DBRS, Inc. (DBRS) has today finalized the provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-HGLR (the Certificates) issued by Houston Galleria Mall Trust 2015-HGLR. The trends are Stable.

-- Class A-1A1 at AAA (sf)
-- Class A-1A2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class X-CP at AAA (sf)
-- Class X-NCP at AAA (sf)

All classes were privately placed.

The collateral for the transaction consists of the fee interest in an enclosed super-regional mall located in Houston, Texas. The fee interest consists of a 1,212,006 sf portion of the 2,054,469 sf mall, currently occupied by roughly 300 national and regional tenants. The collateral is anchored by Macy’s, Nordstrom, Neiman Marcus and Saks Fifth Avenue (Saks). Macy’s and Nordstrom own their own sites and spaces, while the Neiman Marcus and Saks own their respective improvements and are subject to ground leases. The property is owned by Simon Property Group (SPG) and Institutional Mall Investors (IMI). The property will be managed by an affiliate of the borrower, Simon Management Associates. The whole loan of $1.2 billion is to be split into a $1.05 billion trust balance, securitized in this transaction and a $150 million companion loan that is anticipated to be included in a future securitization. The transaction is a sequential-pay structure. Proceeds from the loan will be used to retire the existing debt of $821 million, return equity of $370.6 million to the sponsors and pay $8.4 million of closing costs. The existing loan was previously securitized in JPMCC 2005-LDP5 and JPMCC 2006-CB14 transactions. The loan is current and has been paid as agreed. The existing loan has a maturity date of December 2015 and can be prepaid with no penalty.

The Houston market has many regional malls, including eight within a 20-mile radius of the subject. The high population count in the area, with approximately 472,000 people living within the five-mile primary trade area and 1.6 million people living within the ten-mile secondary trade area of Galleria Mall, combined with strong average household income of $99,537 within the five-mile primary trade area (40% higher than the national average), supports the strong performance of many of the malls in the area. Houston Galleria Mall has performed very well historically, with occupancy including temp tenants averaging 95.5% since 2005. In addition, sales productivity is quite strong, with YE2014 sales for in-line tenants less than 10,000 sf of $973 psf. The subject property has significant drawing power with four fashion anchors, including the only Neiman Marcus in the Houston MSA and one of only two Nordstrom locations in the MSA, as well as a Saks Fifth Avenue and a Macy’s, all with manager-estimated sales well above their respective stores’ national averages. The mall has exhibited strong leasing momentum over the past few years, with 11 new or renewal leases being signed or out for signature in 2015. Also, for leases renewed in 2014 or 2015, the average total rental rate increase is approximately 31% over the tenant’s prior total rent, including tenants such as Bulgari, Coach, Bath & Body Works and Champs Sports, to name a few.

DBRS NCF is $94,843,553 representing a -5.2% haircut to the issuers NCF. Although the loan does not amortize, the going-in leverage is moderate, with the DBRS Debt Yield at 7.9%. In addition, the DBRS Refi DSCR is at 1.09x, commensurate with the initial ratings assigned by DBRS and based on a stressed 7.25% refinance constant that implies a 5.98% interest rate and a 30-year amortization schedule. This stressed refinance rate is 2.58% above the current loan’s interest rate of 3.40%. The loan has minimal default risk during the ten-year loan term, as the DBRS Term DSCR is quite high at 2.32x and no individual tenant contributes more than 2.8% of total income. DBRS LTV is 88.6%, based on a 7.0% cap rate. This level of cap rate expansion from the 3.96% cap rate utilized by the appraiser would represent a 43.5% decline to the appraiser’s estimate of current market value.

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

All classes were privately placed.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.
The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.