DBRS Confirms Ratings of GS Mortgage Securities Corporation Trust 2012-SHOP
CMBSDBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2012-SHOP issued by GS Mortgage Securities Corporation Trust 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 structured with an interest-only seven-year term. The collateral is 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 the YE2014 reporting, the loan had a debt service coverage ratio (DSCR) and debt yield of 2.89 times and 12.4%, respectively, compared with 2.43x and 10.4% at issuance, respectively.
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 the tallest building in Nevada, finished with a modern European design highlighted by a 60-foot glass dome lobby and a two-storey fountain. During 2013, the sponsor, General Growth Properties, Inc., invested over $2 million in capital improvements to adjoin the two malls, rebranding them as “The Grand Canal Shoppes” and actively marketing the space to more upper-midscale retail tenants.
According to the December 2014 rent rolls, the properties were cumulatively 92.7% occupied with an average rental rate of $84.47 per sf (psf) compared with 95.2% and $78.96 psf at issuance. Rollover is minimal at either property until 2018 and 2019, when approximately 6.5% and 11.6% of the total net rentable area (NRA), respectively, have lease expirations. The borrower has reportedly executed a new leasing agreement with Meizhou Dongpo for 19,000 sf of space at the Shoppes at Palazzo property. The space has proven difficult to lease, as several leasing agreements have fallen through since 2012 because the space is tucked away and receives relatively little foot traffic in comparison to the rest of the shopping area. The Meizhou Dongpo restaurant is an upmarket Chinese eatery with a projected opening date in either Q1 or Q2 2016.
The largest tenant, Barney’s New York (Barney’s; 10.3% NRA) at the Shoppes at Palazzo property was previously expected to terminate its lease in January 2015, before its original January 2018 lease expiation; however, Barney’s executed a lease renewal, extending its leasing through January 2019. DBRS had viewed the potential departure of Barney’s as a net positive, as the sponsor would have been able to recapture the space and develop it into additional small footprint storefronts, which would have potentially generated additional rental revenue. While DBRS recognized the potential positive effects of Barney’s terminating its lease, it did not underwrite any additional upside in cash flow at issuance or with this rating action.
According to the T-12 December 2014 sales report, Barney’s reported sales of $250 psf compared with $263 psf from the preceding year. Despite the decrease in sales for Barney’s, both malls continue to report strong sales numbers, as in-line stores occupying less than 10,000 sf had sales of $1,010 psf (+5.9%), and in-line stores occupying more than 10,000 sf had sales of $759 psf (+4.0%). Both of these figures were improvements from the previous year and are indicative of the subject’s desirability in the market.
DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The May 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are 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.
The applicable methodologies are CMBS Rating Methodology (June 2015) and North American CMBS Surveillance Methodology (January 2015), which can be found on our website under Methodologies.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com
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