DBRS Morningstar Confirms Ratings on BAMLL Commercial Mortgage Securities Trust 2013-WBRK, Negative Trends; Removes from Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-WBRK issued by BAMLL Commercial Mortgage Securities Trust 2013-WBRK:

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

All trends are Negative because the underlying collateral continues to face performance challenges associated with the Coronavirus Disease (COVID-19) global pandemic. The ratings have been removed from Under Review with Negative Implications, where they were placed on April 24, 2020.

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, at www.dbrsmorningstar.com. On April 24, 2020, DBRS Morningstar placed the ratings on its outstanding SASB transactions secured by retail properties Under Review with Negative Implications as the global shelter-in-place and mandatory retail closures related to the coronavirus have contributed to retail bankruptcies and anticipated vacancies in retail centers. For further information on these rating actions, please see the DBRS Morningstar press release dated April 24, 2020, at www.dbrsmorningstar.com.

During its review of the ratings for this transaction, DBRS Morningstar considered both the impact of the updated NA SASB Methodology and its scenarios attributable to the ongoing coronavirus pandemic on the ratings.

Because of the coronavirus’ significant impact on retail performance, DBRS Morningstar first considered the application of the updated NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology” to arrive at a baseline result, which incorporated qualitative assumptions, capitalization rates, and loan-to-value (LTV) ratio sizing benchmark quality/volatility adjustments and excluded any potential changes in current or future expected asset performance resulting from the coronavirus.

DBRS Morningstar then overlaid scenarios incorporating additional reductions in net cash flow (NCF) to account for exposure to bankrupt or closed tenants. This resulted in stressed collateral value declines consistent with the projections in its “Global Macroeconomic Scenarios: September Update” published on September 10, 2020, on top of the baseline result to determine the impact of coronavirus-related changes in asset performance on the subject transaction on a tranche-by-tranche basis. For more information on these stress scenarios, please refer to the Coronavirus Impact Analysis section of this document. The global macroeconomic scenarios include a moderate decline of 15% for all commercial real estate (CRE), which acts as an average for all CRE property types. However, DBRS Morningstar expects a greater range of value decline for retail properties, ranging from 10% to 45% based on the type of tenant composition, exposure to bankrupt or challenged retailers, asset sponsorship, and asset location. DBRS Morningstar expects that lower-tier regional malls with in-line sales generally less than $300 per square foot (psf) will be the most affected.

LOAN/PROPERTY OVERVIEW
The $360.0 million loan is secured by the fee and leasehold interests in 492,649 square feet (sf) of a 1.5 million-sf super-regional mall, Willowbrook Mall, in Wayne, New Jersey. The loan is a fixed-rate loan that was structured with a 12-year term and is scheduled to mature on March 1, 2025. The loan facilitated the repayment of $137 million in existing debt and provided a partial return of cash equity of $210.0 million to the sponsor. The loan sponsor is Brookfield Property Partners L.P. (Brookfield; rated BBB with a Negative trend by DBRS Morningstar) as Brookfield acquired the original owner, General Growth Properties, Inc.

The mall was anchored by noncollateral tenants Bloomingdale’s, Macy’s, Sears, and Lord & Taylor at issuance. The former Sears’ box is currently partially leased by Dave & Buster’s and Yard House. A news report published in September 2020 by NorthJersey.com noted that more than 100 employees at the Dave & Buster’s at Willowbrook Mall will be laid off in November 2020, and no notice was provided regarding if the location will permanently shut down following the layoffs. The Yard House has not yet opened as of October 21, 2020. The sponsor has a signed lease with BJ’s Wholesale Club to lease additional space in the former Sears’ box, but the lease is contingent on certain entitlements before the lease is active. Management is forecasting that the BJ’s Wholesale Club will be open by fall 2021, and the current plan is to market the additional vacant space in the former Sears’ box following the opening of BJ’s Wholesale Club. While Lord & Taylor was still operating at the property as of October 2020, the tenant is expected to vacate its space by the end of December 2020. There are currently no plans to repurpose or re-tenant the Lord & Taylor space. Since issuance, an additional anchor space leased to Cinemark was constructed, which is also not a part of the collateral for this loan. The 12-screen movie theater opened in November 2019. The Cinemark theater closed in March 2020, as result of government-mandated restrictions because of the pandemic, but reopened in September 2020.

The collateral was reported to be 99.1% occupied as of the March 2020 rent roll, which is slightly above the December 2019 occupancy rate of 98.8%. The largest collateral tenants include Zara (5.1% of net rentable area (NRA), lease expires July 2027), Old Navy (4.0% of NRA, lease expires July 2027), and Gap (3.9% of NRA, lease expires September 2024). An Amazon 4-star store, the second in New Jersey, opened on October 13, 2020, at the mall in a space that was formerly occupied by a Microsoft store in the Macy’s wing. The YE2019 sales report sales for in-line tenants occupying less than 10,000 sf (excluding Apple) was $658 psf, which is lower than the trailing 12 months ended September 2018 sales figure of $709 and the YE2017 sale figures $683. The in-line sales decline prior to the pandemic is concerning, as DBRS Morningstar expects in-line sales to drop further in 2020 because of the mall’s pandemic-related closure from March 18, 2020, to June 29, 2020. The loan has otherwise performed well over the loan term, as the loan has exhibited a debt service coverage ratio (DSCR) of at least 3.04 times (x) since the YE2014 and exhibited a DSCR of 3.19x for the YE2019.

The property was constructed in 1969 and was most recently renovated between 2015 and 2017. The total cost of the renovations was estimated to be $20.0 million, and the renovations included new flooring, a redesigned food court and seating areas, new glass railings, new lighting and amenities in the restrooms, and new interior landscaping. Willowbrook Mall is located in an affluent area about 20 miles northwest of Manhattan, New York, and is easily accessible from Interstate 80. A new retail and entertainment complex, the American Dream, opened approximately 15 miles east of the subject with its first phase completed in October 2019 and second phase in December 2019. DBRS Morningstar does not believe the subject property will be considerably affected by the opening American Dream because the American Dream is predominately leased to entertainment tenants and the subject property caters more toward the local population.

DBRS Morningstar derived the NCF using the latest reported servicer NCF with an adjustment, considering ongoing collateral performance including tenant movement and sales performance. The resulting NCF figure was $40.5 million and DBRS Morningstar applied a cap rate of 7.0%, which resulted in a pre-coronavirus DBRS Morningstar Value of $578.4 million, a variance of -7.5% from the appraised value of $625.0 million at issuance. The pre-coronavirus DBRS Morningstar Value implies an LTV of 62.2% compared with the LTV of 57.6% on the appraised value at issuance

The cap rate DBRS Morningstar applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for retail properties, reflecting the location, market position, and quality of the collateral.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 1.5% to account for cash flow volatility, property quality, and market fundamentals.

CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher NCF declines, resulting in stressed collateral value declines consistent with the projections in the “Global Macroeconomic Scenarios: September Update” (https://www.dbrsmorningstar.com/research/366542) to estimate the impact of coronavirus-related changes in asset performance on a tranche-by-tranche basis for the subject transaction. The scenarios included deducting cash flow for bankrupt retailers and increased vacancy expected at the asset to arrive at a coronavirus DBRS Morningstar Value under the moderate scenario, a 15.0% reduction from the pre-coronavirus DBRS Morningstar Value. Because of the more permanent value impairment resulting from the lost tenancy revenue stream, DBRS Morningstar’s analysis considered this value when assigning ratings.

Under the moderate scenario, the cumulative rated debt was insulated from loss.

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 (March 1, 2020) and North American CMBS Surveillance Methodology (March 6, 2020), 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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