DBRS Morningstar Downgrades Ratings on Six Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11

DBRS, Inc, (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 B to B (low) (sf) from AA (low) (sf)
-- Class C to C (sf) from BBB (high) (sf)
-- Class PST to C (sf) from BBB (high) (sf)
-- Class D to C (sf) from B (sf)
-- Class E to C (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (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)

DBRS Morningstar also changed the trends on Classes A-S and B to Negative from Stable. All other trends are Stable, with the exception of Classes C, D, E, F, and PST, which have ratings that do not carry trends. In addition, DBRS Morningstar added an Interest in Arrears designation for Class C.

The downgrades and Negative trends generally reflect the increased likelihood of significant losses to the trust for the two mall loans currently in special servicing, Westfield Countryside (Prospectus ID#1; 16.6% of the pool) and The Mall at Tuttle Crossing (Prospectus ID#2; 15.0% of the pool), which are the two largest loans in the pool. DBRS Morningstar also notes the significantly increased risks for the Marriott Chicago River North Hotel (Prospectus ID#5; 7.9% of the pool), as described below.

The pivotal mall loans have been with the special servicer since 2020 and, with the December 2020 surveillance review of this transaction, DBRS Morningstar assumed significant haircuts to the issuance appraised values for each in loss scenarios for both loans. However, the special servicer recently finalized 2020 appraisals for each that suggest the losses at resolution will come in significantly higher than previously projected, supporting the rating downgrades and Negative trends assigned with this review.

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 Disease (COVID-19) restrictions. The loan is secured by a 464,398-square-foot (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 Theatres (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); Westfield was acquired by Unibail-Rodamco in 2019 and is now part of Unibail-Rodamco-Westfield (URW). The property was 88% occupied based on the December 2020 rent roll, while net cash flow is down 34% as compared with the issuance figure. According to the servicer’s commentary, Westfield will no longer be supporting the asset going forward but is cooperating in a friendly foreclosure process. The property was reappraised in August 2020 at an as-is value of $91.5 million ($70 per square foot (psf)), down 61.0% from the issuance appraisal of $270 million and indicative of a loan-to-value ratio (LTV) of approximately 160.0%. DBRS Morningstar liquidated the loan in the analysis for this review, resulting in a loss severity of 54.8%.

The second-largest loan in the pool, The Mall at Tuttle Crossing, transferred to the special servicer in July 2020, also 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. Simon classifies this property as "Other," which designates the REIT’s noncore assets within its portfolio. According to servicer commentary, the borrower has agreed to a friendly foreclosure. As of the September 2020 rent roll, the property was 62.0% occupied, compared with 87.0% at issuance. An updated appraisal completed in August 2020 valued the property at $80 million ($16.25 psf), down 67% from the issuance appraisal of $240 million and indicative of an LTV of approximately 141.0%. The liquidation scenario assumed for this loan resulted in a loss severity of 44.8%.

The fourth-largest loan in the pool, Marriott Chicago River North Hotel, is backed by a 523-key, dual-flagged hotel in Chicago, just north of the central business district. The property includes a 270-key Residence Inn and a 253-key SpringHill Suites. The loan transferred to special servicing in July 2020 for payment default, driven by coronavirus-related cash flow declines. As of the May 2021 remittance, the loan is more than 120 days delinquent with the monthly debt service last paid in April 2020. The property’s performance declined in 2019, resulting in a year end (YE) 2019 debt service coverage ratio (DSCR) of 1.09 times (x) for the trust loan, a sizable drop from the YE2018 DSCR of 1.38x. While the YE2019 NCF deceased by 27.0% compared with issuance, the decrease was primarily associated with an increase in operating expenses as revenue was up 6.0% compared with issuance.

While the special servicer and borrower continue modification discussions, it is noteworthy that the special servicer rejected the borrower’s request to bifurcate the note into an A/B structure. Given the extended delinquency and likely sharp as-is value decline amid the market challenges of the pandemic and the increased submarket competition since issuance, DBRS Morningstar increased the probability of default to significantly increase the expected loss for this loan in the analysis for this review, with the resulting stress to Class B and Class A-S certificates a primary driver for the Negative trend assignments for those classes.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Class A-S as the quantitative results suggested lower ratings on the class. The material deviations are warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist, in addition to the increased concentration of the pool in terms of the number of loans remaining.

Class X-A is an interest-only (IO) certificate that references 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 (16.6% of the pool)
-- Prospectus ID#2 – The Canyon Portal (15.0% 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 26, 2021), 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 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.dbrsmorningstar.com or contact us at [email protected].

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