DBRS Confirms All Classes of BAMLL Trust 2011-FSHN

DBRS Limited (DBRS) confirmed the ratings of BAMLL Trust 2011-FSHN as follows:

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

All trends are Stable.

The transaction consists of a $410 million fixed-rate, interest-only loan secured by a 659,499 square foot (sf) portion of the 878,914 sf upscale super-regional mall, Fashion Centre at Pentagon City (Fashion Centre), located in Arlington, Virginia. The property is part of a mixed-use development that includes a Ritz-Carlton Hotel and an attached 170,000 sf Class A office building, both of which do not serve as collateral. The rating confirmations reflect the overall stable performance of the transaction, as the property has performed as expected since issuance, with a YE2017 debt service coverage ratio (DSCR) of 2.60 times (x), compared with 2.54x at YE2016, 2.43x at YE2015 and the DBRS Term DSCR at issuance of 2.25x.

The mall was constructed in 1989 and is anchored by non-collateral Nordstrom and Macy’s department stores. Macy’s owns its space and operates on a ground lease expiring in 2020, with 12 five-year renewal options to extend the lease through 2080 with no increase in fixed rent. In June 2016, the final stages of a 47,495 sf expansion and renovation at an approximate cost of $73.0 million were completed. The expansion included the addition of five new tenants, the largest of which is Zara, which occupies a 27,446 sf space. The renovations also included new dining options, new entrances to the mall, upgrades to the common areas and food court, new elevators and energy-efficient lighting.

The property offers a variety of mid-scale to luxury tenants, including such tenants as Apple, Coach, Hugo Boss AG, Cole Haan, Armani Exchange and Zara. As of the March 2018 rent roll, the collateral portion of the property was 93.8% occupied, a slight decline from the December 2017 occupancy rate of 94.8%. Historically, the property’s occupancy rate has been consistently in the mid- to high-90% range. Rental rates for in-line tenants have risen to $113.61 per square foot (psf) as of December 2017, up from the previous year’s average rental rate of $105.13 psf.

According to the January 2018 tenant sales report, in-line tenants occupying less than 10,000 sf (excluding Apple) reported YE2017 sales of $814.43 psf, representing a 4.9% decline from the YE2016 sales of $856.29 psf, but increased by 8.1% from issuance sales of approximately $753 psf. In-line tenants occupying more than 10,000 sf reported YE2017 sales of $405.73 psf, which increased by 18.9% over the YE2016 sales figure of $341.20 psf but declined 27.7% from issuance sales of approximately $561 psf for tenants in that category. Macy’s reported YE2017 sales of $226.42 psf, which declined 4.4% from the YE2016 sales figure of $236.77 psf and 27.9% from the issuance sales of approximately $314 psf. Nordstrom reported YE2017 sales of $262.50 psf, which increased 16.6% over the YE2016 sales figure of $225.13 psf but declined 24.8% from the issuance sales of approximately $349 psf.

It is also noteworthy that Landmark Mall, which is located approximately 6.6 miles from the subject, officially closed its doors as of January 2017 for renovations that will transform the property into an urban-town concept. The owner of Landmark Mall, the Howard Hughes Corporation, has not finalized a timeline for the redevelopment of the property; however, the company reps have been quoted in various articles found online that suggest the project will comprise approximately 317,000 sf of shops and restaurants, along with 400 residential units and an updated parking structure. It is also expected to feature an open-air community with green spaces, outdoor seating, seasonal entertainment and a luxury cinema.

DBRS believes the closure of Landmark Mall will likely result in a short- to medium-term traffic spike for the subject property, but notes the completion of the mall’s development will increase competition for the subject in the longer term. Finally, as the expected completion date for the Landmark Mall project falls near the subject loan’s maturity date in 2021, there could be increased refinance risk if traffic and/or tenant mix at the subject property is significantly affected. These factors are items to consider, but the high sales for the subject, as well as the sponsor’s recent investment in an expansion and renovation speak to the desirability of the location and the ownership’s long-term commitment to the property, mitigating these risks.

Class X is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.
All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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