DBRS Upgrades Two and Confirms Ten Classes of MSC 2011-C3 Mortgage Trust

DBRS Limited (DBRS) has today upgraded the ratings of two classes of Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by the MSC 2011-C3 Mortgage Trust as follows:

-- Class B to AA (high) (sf) from AA (sf)
-- Class C to A (high) (sf) from A (sf)

Additionally, DBRS has confirmed the ratings on the remaining classes in the transaction 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 D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at B (high) (sf)

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

The rating upgrades reflect the performance of the transaction as well as the overall collateral reduction since issuance. Since issuance, the transaction has experienced a collateral reduction of 12.6% as a result of scheduled amortization and the successful loan repayment of four loans, leaving 59 remaining loans out of an original count of 63. The transaction also benefits from defeasance collateral, as three loans, representing 10.1% of the current pool balance, have fully defeased. All three defeased loans are within the largest 15 loans of the pool. Excluding defeasance, the top 15 loans are reporting a weighted-average (WA) debt service coverage ratio (DSCR) of 1.93 times (x) and a WA debt yield of 13.8% as of YE2014 reporting.

As of the August 2015 remittance, there are four loans on the servicer’s watchlist, representing 8.5% of the pool balance. According to the servicer, the Washington Tower (Washington) and Texas Hospitality Portfolio (Texas) loans are expected to be removed from the watchlist, as concerns at each property have been mitigated. At the Washington property, a large tenant occupying 37.5% of the net rentable area (NRA) renewed its lease through June 2017, with the servicer awaiting an updated rent roll for confirmation. The Texas loan was placed on the servicer’s watchlist for a low YE2013 DSCR of 0.87x; however, Q2 financial performance has rebounded to a DSCR of 1.14x. The servicer is currently awaiting YE2014 financials. Both loans are expected to be removed from the servicer’s watchlist once the respective documents are received. The largest loan on the watchlist is highlighted below.

The Royal Ridge loan (Prospectus ID#7), which represents 3.9% of the pool, is secured by a portfolio of four Class B office buildings located in Irving, Texas. The loan was added to the servicer’s watchlist after Capital One, which currently occupies one of the four buildings (25.0% of NRA), decided to close its call center at that location as of July 2015. Upon lease expiration at December 31, 2015, it will vacate the property, reducing occupancy to 72.8%. According to the YE2014 OSAR, the loan reported a DSCR of 1.57x; however, this is expected to decrease beginning in 2016 if a replacement tenant(s) is not signed. According to the servicer, the borrower is actively marketing the space and has conducted several tours of the building, including the submission of one lease proposal.

At issuance, DBRS shadow-rated three loans, representing 15.1% of the pool balance, as investment grade. These loans include Park City Centre (Prospectus ID#1), Washington Tower (Prospectus ID#13) and 420 East 72nd Street (Prospectus ID#33). DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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 August 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.

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.

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

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (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.