DBRS Confirms Ratings of GS Mortgage Securities Corporation Trust 2012-SHOP

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2012-SHOP issued by GS Mortgage Securities Corporation Trust 2012-SHOP, as follows:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction and DBRS’s expectation that the loan will be repaid in time for the upcoming loan maturity on June 1, 2019. The loan is structured with an interest-only, seven-year term and is collateralized by the fee and leasehold interests in two connected super-regional malls totalling 815,587 square feet (sf) in Las Vegas, Nevada, respectively known as the Grand Canal Shoppes (Grand Canal) and the Shoppes at the Palazzo (Palazzo).

Both properties are located at the northern end of the Las Vegas Strip, one of the most popular tourist locations in the United States, with an abundance of retail, restaurants and nightlife. Located within The Venetian Resort, Grand Canal features nearly 500,000 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 resides within the Palazzo Tower and features approximately 315,000 sf of luxury retail, restaurant and nightclub space. While both spaces have similar offerings, Grand Canal features more restaurants and entertainment, whereas Palazzo caters more toward the upper-midscale shopper.

During 2013, the sponsor, General Growth Properties (acquired by Brookfield Property Partners L.P. in 2018), invested over $2.0 million in capital improvements to adjoin the two malls, rebranding them as The Grand Canal Shoppes. With this consolidation, the sponsor has marketed the space to upper-midscale retail tenants.

According to the December 2018 rent rolls, the portfolio was 90.0% occupied, compared with 87.9% in December 2017 and 95.5% at issuance. Individually, Grand Canal and Palazzo were 99.0% and 75.6% occupied compared with 93.0% and 79.7% in December 2017, respectively. Rental rates for the portfolio have grown to $106.78 per square foot (psf), compared with an average of $97.02 psf at YE2017 due to scheduled rent escalations and recent lease executions.

The largest tenant within the portfolio is Barneys New York (10.4% of the total net rentable area (NRA)), which had a lease expiration in January 2019, according to the December 2018 rent roll; however, as of May 2019, online searches indicate that the tenant continues to operate at the subject. Other large tenants include Tao Las Vegas (4.9% of the total NRA, expires January 2025) and Showroom Space (The Venetian Theatre) (4.8% of the total NRA, expires May 2029). For both Palazzo and Grand Canal, tenants representing approximately 22.0% of the combined NRA are scheduled to roll in 2019. Although this figure is relatively high, DBRS believes renewal probability is likely quite high as the overall property occupancy has hovered around 90.0% over the past five years and the property is located in a desirable location along the Las Vegas Strip.

Portfolio performance is heavily dependent upon tourism, particularly foreign tourists, as half of the subject’s customer base resides outside the United States. Given strong and consistent visitor volume, the tenant sales report for the trailing 12 months ending December 2018 reported that the overall sales for both properties remained relatively unchanged at $841.67 psf, when compared to the previous year-end reporting period.

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 this transaction.

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

The principal methodology is 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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