DBRS Confirms Ratings of MSC 2011-C3 Mortgage Trust

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by MSC 2011-C3 Mortgage Trust as follows:

-- 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 B at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (sf)
-- Class F at BBB (low) (sf)
-- Class X-B at BB (low) (sf)
-- Class G at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. According to the January 2019 remittance, 44 of the original 63 loans remained in the trust, with an aggregate principal balance of approximately $896.3 million, representing a collateral reduction of 39.9% since issuance due to scheduled loan amortization and loan repayments. To date, six loans (4.7% of the pool) have been fully defeased. Approximately 89.9% of the pool has reported partial-year 2018 financials, while 95.0% has reported year-end (YE) 2017 financials. Based on the most recent YE reporting, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.87x times (x) and 13.5%, respectively, compared to the WA DBRS Term DSCR and DBRS Debt Yield figures of 1.70x and 10.8% for the remaining loans, as derived at issuance.

The pool is concentrated by property type and loan size. By property type, 17 loans (48.3% of the pool) are secured by retail properties, while 13 loans (37.8% of the pool) are secured by office properties. Notably, the three largest loans (35.3% of the pool) are secured by regional malls, all of which are located in secondary markets. Although these loans benefit from low leverage, strong operators and generally healthy refinance metrics, two of the three loans (24.6% of the pool) are currently on the servicer’s watchlist for recent anchor closures. Both of these loans, Park City Center (Prospectus ID#1, 15.2% of the pool) and the Oxmoor Center (Prospectus ID#3, 9.3% of the pool), are on the DBRS Hotlist. Park City Center has recently lost two anchors in Bon-Ton and Sears and Oxmoor Center has been working to backfill space vacated by Sears with a Topgolf location, a plan that has faced local opposition. The third mall loan, Westfield Belden Village (Prospectus ID #2, 10.8% of the pool), is also on DBRS’s radar for the loss of Sears, but given the healthy sales most recently reported for that tenant, DBRS believes the mall is well positioned to backfill the space with a more desirable tenant base.

It is also noteworthy that two of the 13 loans secured by office properties (9.3% of the pool) are situated in submarkets located on the west side of the Houston metropolitan statistical area, with submarket vacancy rates hovering around 20.0%. Both properties have seen significant physical occupancy declines since issuance, a factor of the market difficulties that have been driven by the downturn in the oil and gas markets in recent years. As such, these two loans, One Briarlake Plaza (Prospectus ID#4, 8.4% of the pool) and 1717 St James (Prospectus ID#38, 0.8% of the pool), have been added to the DBRS Hotlist. By loan size, the largest ten loans represent 69.3% of the pool. Based on the most recent YE reporting, the top ten loans reported a WA DSCR of 1.91x, compared to the WA DBRS Term DSCR of 1.59x, reflecting net cash flow growth of 23.0% over the DBRS issuance figures.

According to the January 2019 remittance, there are eight loans, representing 37.3% of the pool, on the servicer’s watchlist and no loans in special servicing. The largest watchlisted loan is the previously mentioned Park City Center loan, which is secured by a regional mall in Lancaster, Pennsylvania (owned and operated by Brookfield). Although the loan’s performance has historically been strong, with the most recent full-year reporting showing a YE2017 DSCR of 2.47x, the loan has a scheduled maturity in June 2019, with the two vacant anchors representing significantly increased refinance risk for the near-term maturity. There are mitigating factors in the low leverage ($112 psf), the property’s healthy inline sales, and the strong sponsorship and property management in Brookfield. For additional information on the loans highlighted above, please see the loan commentary on the DBRS Viewpoint platform, for which information is provided below.

At issuance, DBRS shadow-rated Washington Tower (Prospectus ID#13, 4.5% of the pool) and 420 East 72nd Street Coop (Prospectus ID#33, 1.2% of the pool) investment grade. DBRS confirmed that the performance of these loans remains consistent with investment-grade characteristics.

Classes X-A and X-B are interest-only (IO) certificates that reference 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Park City Center (Prospectus ID#1, 15.2% of the pool) (DBRS Hotlist)
-- Westfield Belden Village (Prospectus ID#2, 10.8% of the pool)
-- Oxmoor Center (Prospectus ID#3, 9.3% of the pool) (DBRS Hotlist)
-- One Briarlake Plaza (Prospectus ID#4, 8.4% of the pool) (DBRS Hotlist)
-- Granada Hills Town Center (Prospectus ID#12, 4.2% of the pool)
-- Washington Tower (Prospectus ID#13, 4.5% of the pool)
-- Park Place Tower (Prospectus ID#16, 2.7% of the pool)
-- 420 East 72 Street Coop (Prospectus ID#33, 1.2% of the pool)
-- 1717 St James (Prospectus ID#38, 0.8% of the pool) (DBRS Hotlist)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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