DBRS Morningstar Confirms All Ratings of MSC 2011-C3 Mortgage Trust

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

-- Class A-4 at AAA (sf)
-- Class A-J at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A 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. Per the November 2019 remittance, 39 of the original 63 loans remain in the pool with an aggregate trust balance of $651.9 million, representing a collateral reduction of 56.3% since issuance due to scheduled loan amortization and loan repayment. There are ten loans, representing 15.2% of the pool, that are fully defeased. Per the year-end (YE) 2018 financials, the top 15 loans, representing 80.7% of the pool, reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.70 times (x), compared to the WA DBRS Morningstar Term DSCR of 1.56x, representing net cash flow (NCF) growth of 18.8% over DBRS Morningstar NCF figures. At issuance, the pool had a WA loan-to-value (LTV) ratio of 61.6%, compared with the WA LTV for the pool of 64.3% as of the November 2019 remittance.

According to the November 2019 remittance, there are seven loans, representing 20.6% of the pool, on the servicer’s watchlist and no loans in special servicing. The pool’s watchlisted loans reported a WA DSCR of 1.42x, representing NCF growth of 13.8% over the DBRS Morningstar NCF figures according to the most recent YE financials. The largest loan on the watchlist, Royal Ridge (Prospectus ID#7; 7.3% of the pool), is secured by an office property in Irving, Texas, and was added to the servicer’s watchlist in March 2019 as the property’s largest tenant, American Airlines (24.5% of net rentable area (NRA)), exercised its lease termination option effective December 2019. DBRS Morningstar notes that the implied DSCR without American Airlines would be approximately 1.00x and the loan is approaching its July 2021 maturity date. DBRS Morningstar increased the probability of default for the loan as part of the review.

The pool’s two largest loans, representing 27.2% of the pool balance, are secured by regional malls located in secondary markets with no major markets in close proximity. Westfield Belden Village (Prospectus ID#2; 14.6% of the pool) in Canton, Ohio, and Oxmoor Center (Prospecutus ID#3; 12.6% of the pool) in Louisville, Kentucky, have been affected by the downsizing and departure of anchor tenant Sears. The Sears at Westfield Belden Village downsized to 8.9% of total NRA in 2018 after previously occupying 22.9% of total NRA and Sears recently announced the store will close in January 2020. Dave & Buster’s is backfilling a portion of the Sears space (4.3% of total NRA) that is scheduled to begin occupancy in November 2019. The servicer also noted leases were being negotiated with two national big-box retailers to lease large portions of the remaining Sears space. The Sears at Oxmoor Center, representing 14.8% of NRA, permanently closed in 2018; however, the sponsor executed a 20-year lease with Topgolf with an expected occupancy date of June 2020. Despite the space not being completely backfilled, Topgolf’s base rents are considerably higher than Sears’ previous base rents and will be an overall net positive for the property. Despite the recent declining occupancy rates at both malls, the loans reported strong cash flow growth since issuance as they had an average NCF growth of 8.5% over the DBRS Morningstar NCF figure.

At issuance, DBRS Morningstar shadow-rated Washington Tower (Prospectus ID#13, 6.1% of the pool) investment grade. DBRS Morningstar confirmed that the performance of this loan 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 Morningstar.

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

-- Prospectus ID#2 – Westfield Belden Village
-- Prospectus ID#3 – Oxmoor Center
-- Prospectus ID#7 – Royal Ridge
-- Prospectus ID#12 – Granada Hills Shopping Center (5.6% of the pool)
-- Prospectus ID#13 – Washington Tower
-- Prospectus ID#16 – Park Place Tower (3.6% of the pool)
-- Prospectus ID#18 – Briargate Office Park (3.3% of the pool) (DBRS Morningstar Hotlist)
-- Prospectus ID#42 – Freedom Village Shopping Center (0.9% of the pool)

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 commercial mortgage-backed security (CMBS) transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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 Morningstar 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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 Morningstar 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 [email protected].

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