DBRS Morningstar Assigns Ratings to Starwood Retail Property Trust 2014-STAR

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2014-STAR issued by Starwood Retail Property Trust 2014-STAR (the Issuer) as follows:

-- Class A at B (sf)
-- Class B at C (sf)
-- Class C at C (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)

The trend on Class A is Negative because of the loan’s specially serviced status and possible negative credit degradation absent a timely resolution to the assets in addition to the negative impact of the Coronavirus Disease (COVID-19) on the retail sector. Classes B through F do not carry trends.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about August 7, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were not made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

The transaction is collateralized by a $681.6 million floating-rate loan secured by three regional malls and one lifestyle center. The Mall at Wellington Green is a 1.3 million-square-foot (sf) indoor regional mall in Palm Beach County, Florida. At closing, it was anchored by City Furniture, Nordstrom on a ground lease, and noncollateral anchors Macy’s, Dillard’s, and J.C. Penney. MacArthur Center is a 928,000-sf regional mall in downtown Norfolk, Virginia, anchored by Dillard’s on a ground lease and Regal Cinema. Northlake Mall is a 1.1 million-sf regional mall in Charlotte, North Carolina. Collateral is 540,000 sf of retail space with Dick’s Sporting Goods and AMC Theatres as the collateral anchor tenants while other noncollateral anchors include Dillard’s, Macy’s, and Belk. The Mall at Partridge Creek is a 626,000-sf lifestyle center in Clinton Township, Michigan, about 30 miles north of downtown Detroit. The property’s only remaining anchor is MJR Digital Theatres as Nordstrom vacated in September 2019 and Carsons vacated in 2018 following its bankruptcy filing.

The loan was structured with debt yield hurdles attached to each of the two extension options. In 2017, after not meeting the debt yield hurdle, the sponsor was required to pay down principal by $25.0 million and make monthly principal payments of $800,000 to satisfy a loan modification, which ultimately extended the loan to November 2019. Upon final maturity, the loan transferred to special servicing for maturity default. While the sponsor was considering a possible restructuring prior to the global Coronavirus Disease (COVID-19) pandemic, the servicer now reports that discussions have been put on hold.

The sponsor’s inability to refinance the loan was partly the result of a steady decline in net cash flow (NCF) as occupancy fell over the years, reaching a low of 81% in 2019 from 96% at issuance. The servicer reported the year-end 2019 aggregate NCF at $48.3 million, a -29.4% variance from the Issuer’s figure of $68.4 million at issuance. DBRS Morningstar anticipates that this downward trend will continue, given the additional strain that the coronavirus has placed on retailers that were already affected by e-commerce.

In assigning these ratings, DBRS Morningstar relied heavily on the updated appraisal value of $366.7 million provided after the loan transferred to the special servicer. This assumed value results in an LTV of 185.8% and equates to a 13.0% cap rate on the servicer’s reported 2019 NCF. Furthermore, the value is 66% lower than the Issuer’s appraisal value at issuance and barely covers the original AAA-rated front-pay class.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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 this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding 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 methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.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.dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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