DBRS Morningstar Takes Rating Actions on Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11

DBRS Limited (DBRS Morningstar) downgraded its ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-C11 issued by Morgan Stanley Bank of America Merrill Lynch Trust:

-- Class D to B (sf) from BB (sf)
-- Class E to B (low) (sf) from B (high) (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at BBB (high) (sf)
-- Class PST at BBB (high) (sf)
-- Class F at CCC (sf)

With this review, DBRS Morningstar removed Classes E and F from Under Review with Negative Implications, where they were placed on August 6, 2020.

DBRS Morningstar also changed the trends on Classes C, D, E, and PST to Negative from Stable. All other trends are Stable, with the exception of Class F, which has a rating that does not carry a trend. In addition, DBRS Morningstar added an Interest in Arrears designation for Class F.

The rating downgrades and Negative trends are reflective of the continued performance challenges for the underlying collateral, with previous cash flow declines for several large loans, including the three largest in special servicing, severely compounded by the effects of the Coronavirus Disease (COVID-19) global pandemic. In addition to the four loans representing 39.8% of the pool in special servicing as of the November 2020 remittance, DBRS Morningstar notes that retail collateral makes up the largest concentration of one property type, with six loans comprising 42.6% of the current trust balance. The pool also features loans backed by eight hospitality properties, representing 22.0% of the pool. Both hospitality and retail properties have been the most severely affected by the initial effects of the coronavirus pandemic and, as such, the high concentration suggests increased risks for the pool, particularly for the lower rating categories, since issuance.

The four loans in special servicing are Westfield Countryside (Prospectus ID#1; 16.5% of the pool), The Mall at Tuttle Crossing (Prospectus ID#2; 15.0% of the pool), Marriott Chicago River North Hotel (Prospectus ID#5; 7.9% of the pool), and Hampton Inn – Katy, TX (Prospectus ID#36; 0.4% of the pool). Two of the four loans in special servicing are secured by regional malls located in suburban markets, while the remaining two are secured by hospitality properties.

The largest loan in the pool, Westfield Countryside, transferred to the special servicer in June 2020 for imminent default, after being closed for over two months as a result of coronavirus restrictions. The loan is secured by a 464,398-sf portion of a 1.3 million sf super regional mall in Clearwater, Florida. The mall was initially anchored by Sears (which vacated in July 2018), Macy’s, Dillard’s, and JCPenney, all of which own their improvements and are not part of the collateral. Major collateral tenants include Cobb Theatre (11.6% of the NRA through December 2026), Game Time (5.7% of the NRA through September 2034), and Forever 21 (4.3% of the NRA through January 2023). The loan is sponsored by Westfield Group (Westfield) and O’Connor Capital Partners (O’Connor).

According to servicer commentary, Westfield will no longer be supporting the asset going forward but is cooperating in a friendly foreclosure process. Westfield will continue managing the mall while receiver and sales proposals are being evaluated. The mall is expected to be listed for sale by YE2020 as O’Connor is also not interested in further investment into the partnership or property. An updated appraisal is currently being reviewed but has not been finalized as of the November 2020 reporting period. According to the June 2020 rent roll, the property was 88.8% occupied, compared with 92.0% at issuance. In addition to the decline in occupancy, operating expenses have been steadily increasing YOY. The going-in LTV (loan-to-value) was relatively low at 57.4%. As such, a 50% haircut to the issuance appraisal value of $270.0 million and a stressed advancing figure implies a relatively moderate loss severity of 20.4%. However, given the fact that the sponsor is expected to give the property over to the trust and there are significant unknowns with regard to the ultimate liquidation scenario given the current retail environment, DBRS Morningstar notes the loss severity could be much higher at resolution, supporting the Negative trend assignments as previously outlined.

The second-largest loan in the pool, The Mall at Tuttle Crossing, transferred to the special servicer in July 2020 for imminent default. The loan is secured by a 385,057-sf portion of a 1.1 million sf super regional mall in Dublin, Ohio, a suburb of Columbus. The property, owned and operated by Simon Property Group (Simon), was built in 1997 and originally had three anchors: JCPenney, Sears, and Macy's. The noncollateral Macy’s downsized in 2017, closing one of its two anchor spaces, and the noncollateral Sears vacated the property in 2018. Dayton-based fun center Scene75 purchased the former Macy’s store and opened in mid-2019. The largest collateral tenants are Finish Line (5.4% of the NRA through February 2025) and Show Depot (3.5% of the NRA through June 2023). It should be noted that relatively new competition for the subject was noted at issuance in the Polaris Fashion Place, which was constructed in 2000. As a result, the collateral property has transitioned from being one of the best-performing malls in Columbus to a more modest player.

According to servicer commentary, the borrower has agreed to a friendly foreclosure. Simon classifies this property in its "Other Properties" category, which designates the REIT’s noncore assets within its portfolio. As of the June 2020 rent roll, the property was 69.0% occupied, compared with 87.0% at issuance. The going-in LTV was relatively low at 52.1%. As such, a 50% haircut to the issuance appraisal value of $240.0 million implies a relatively low loss severity of 5.6%. However, while this figure is a reference point, much like the Westfield Countryside loan, DBRS Morningstar acknowledges the loss at resolution could tick higher, supporting the Negative trends assigned to the lowest rated bonds.

DBRS Morningstar is also monitoring the third-largest loan in the pool, Southdale Center (Prospectus ID#4, 8.5% of the pool), which was most recently added to the servicer’s watchlist in November 2020. The loan is secured by a 634,880-sf portion of a 1.3 million sf Simon-owned shopping mall in Edina, Minnesota. At issuance, the two spaces that served as collateral anchors were leased to Herberger's and Marshalls, while the two noncollateral anchors were occupied by Macy's and JCPenney. Throughout the years, the collateral Herberger’s and Marshalls and noncollateral JCPenney anchors vacated the subject. The former JCPenney space was razed and rebuilt as a 120,000-sf Life Time Fitness & Life Time Work (35,000 sf of office space) in December 2019, and there are plans for the former collateral Herberger’s space to be back-filled with another less traditional tenant in Hennepin County's Southdale Library. Although there has been positive leasing activity, according to the June rent roll, the overall occupancy rate for the property was 67.0%, while the collateral portion was 54.0% occupied. Given the current stressed retail environment and low occupancy, DBRS Morningstar applied a stressed probability of default for this loan in the analysis for this review, significantly increasing the expected loss.

As of the November 2020 remittance, 30 of the original 38 loans remain in the pool, representing a collateral reduction of 32.4% since issuance. Five loans, representing 12.1% of the current pool balance, are fully defeased. Additionally, there are nine loans, representing 24.6% of the current trust balance, on the servicer’s watchlist per the November 2020 remittance. These loans are being monitored for a variety of reasons including low debt service coverage ratio (DSCR) and occupancy issues; however, the primary reason for the increase of loans on the watchlist is for hospitality and retail properties with a low DSCR stemming from disruptions related to the coronavirus pandemic.

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.

Classes X-A and PST 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#1–Westfield Countryside (16.5% of the pool)
-- Prospectus ID#2–The Mall at Tuttle Crossing (15.0% of the pool)
-- Prospectus ID#4–Southdale Center (8.5% of the pool)
-- Prospectus ID#5–Marriott Chicago River North Hotel (7.9% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on 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 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 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@dbrsmorningstar.com.

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 info@dbrsmorningstar.com.

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