DBRS Finalizes Provisional Ratings on MSCCG Trust 2015-ALDR

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-ALDR (the Certificates) issued by MSCCG Trust 2015-ALDR. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)

All classes will be privately placed.

The provisional rating on Class X-B has been discontinued, as the class has been withdrawn.

The collateral for the transaction is the fee interest in an enclosed super-regional mall with two open-air sections located in a northern suburb of Seattle. The collateral portion of the property consists of 575,704 square feet of major tenant, cinema and in-line space currently occupied by 141 national and regional tenants. The subject features five anchor tenants: Macy’s, JCPenney, Sears, Loews Cineplex and Nordstrom. Only Loews Cineplex serves as collateral for the loan, though an affiliate of one of the sponsors, General Growth Properties (GGP), co-owns the Sears parcel with the tenant. The property is owned by a GGP/Homart II L.L.C., a joint venture between GGP and the New York State Common Retirement Fund and is managed by an affiliate of GGP. The partnership purchased the mall in 1999 for $162 million and has spent an additional $162 million renovating and expanding the property over the past 16 years. Loan proceeds of $355 million refinanced existing debt of $243.3 million, returned $110.5 million of equity to the sponsor and covered $1.2 million of closing costs. The subject property secured a $268 million mortgage loan prior to the debt that was just refinanced, the senior pieces of which were securitized in MSCI 2006-TOP21 and BSCMS 2006-TOP22. Those pieces were paid in full at maturity and were not extended as a result of the GGP bankruptcy.

The Seattle MSA economy is performing very well, as indicated by the 4.6% unemployment rate reported by the U.S. Bureau of Labor Statistics as of March 2015. This compares favorably with the respective state and national levels of 5.9% and 5.6% during that time. Income demographics in the subject’s trade area are also favorable, with the appraiser reporting the 2014 average household income in a ten-mile radius at $84,752, which is approximately 19% higher than the average household income for the entire United States. A large retail property such as the subject is far more likely to thrive in a dynamic and growing metropolitan area, especially one with limited available land and high barriers to entry compared with a stagnating economy. Sales performance is strong, with comparable sales for in-line tenants less than 10,000 square feet (excluding Apple) at $513 per square foot during the 12 months ending January 31, 2015, period. Anchor sales are also strong, with two tenants (Nordstrom and Macy’s) reporting sales of $50 million or more, and the typically struggling JCPenney reporting very strong sales of $30 million. The loan is providing a $110.5 million cash-out to the sponsor, leaving no cash equity remaining behind the $355 million loan. The approximate cost basis of $324 million was incurred primarily in 1999 (original purchase) and 2003-2004 (re-development and expansion). Adjusting for nearly 15 years of inflation (on a weighted-average basis) would increase the real cost basis by nearly 50% in today’s terms. In addition, the sponsor created significant value by bringing in more upscale tenants and restaurants to The Village, which represents approximately 27% of base rent. GGP is considered a strong operator of super-regional malls that continues to execute its strategy of making the mall more upscale to cater to the local demographics.

DBRS net cash flow (NCF) is $30,277,345, representing a variance of -7.3% to the Issuer’s NCF. Term default risk is considered relatively low. Although the DBRS Term debt service coverage ratio (DSCR) is not exceptionally high at 1.58 times (x), the property benefits from a diverse income stream. There is only one tenant that contributes more than 5.0% of gross revenue at the property (Loews at 7.6%), with the next largest at 3.1% (Recreational Equipment Inc.).The loan benefits from substantial amortization, as there is no interest-only period during the ten-year loan term. Total scheduled amortization is approximately 22% and results in a very strong DBRS Refi DSCR of 1.36x based on an 8.00% refinance constant. Assuming a 30-year amortization schedule, this refinance constant implies a 7.02% interest rate, which is more than double the actual fixed interest rate for the loan. The DBRS Refi LTV is low at 71.1%, and the LTV at maturity based on the appraiser’s current market value is extremely low at 39.6%.

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

The applicable methodology is North American 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.