DBRS Morningstar Discontinues Ratings on Four Classes and Confirms Two Classes of DBUBS 2011-LC2 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2011-LC2 issued by DBUBS 2011-LC2 Mortgage Trust:

-- Class FX at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

In addition, DBRS Morningstar discontinued its ratings on Classes C, D, and E as those classes repaid in full as of the June 2021 remittance report. DBRS Morningstar also withdrew its rating on Class X-B as the notional class references Classes F and G.

The rating confirmations reflect the impact of the adverse selection of the loans remaining in the trust. Just three loans with an aggregate balance of $65.5 million remain in the trust. The three remaining loans are all in special servicing and are past due for their respective balloon maturity payments in Q2 2021. Full repayment of the rated principal and interest class is dependent on the execution of workout plans for each loan. In addition, the unrated Class G has $1.65 million of accrued interest shortfalls as of July 2021 and continues to accrue. Notably, Classes C, D, and E fully repaid as of the June 2021 remittance primarily because of the full payoff of the Willowbrook Mall loan ($177.1 million of principal balance).

Magnolia Hotel Houston (Prospectus ID#16 – 51.6% of the trust balance) is secured by a 314-key full-service hotel in the Houston central business district (CBD). The property was originally constructed in 1926 and the borrower recently completed a $8.04 million property improvement plan (PIP) in 2019. The borrower originally requested coronavirus-related relief in March 2020 and the loan was modified to allow principal and interest payments to be funded from reserves as well as the suspension of funding of reserves from May 2020 to July 2020. The borrower further requested the special servicer use funds from furniture, fixtures, and equipment and Excess Cash Flow reserves to be drawn in order to cover operating shortfalls while also proposing an A/B structure as the basis of a possible modification, which the special servicer did not approve. The loan ultimately transferred to the special servicer in July 2020 for payment default and loan payments remain due for November 2020 and all payments thereafter. As of June 2021, the special servicer and borrower completed negotiations on a modification and extension of the loan term, which is expected to close in July 2021 pending approval from the special servicer. The collateral was reappraised in September 2020 for an “as-is” value of $46.6 million, down 26.8% from the issuance appraised value of $63.7 million. The updated appraised value implies there is sponsor equity remaining in the collateral with a loan-to-value ratio of 72.5% based on the outstanding principal balance.

The Tower (Prospectus ID#23 – 28.8% of the trust balance) is secured by a mixed-use complex that is predominantly office space across three buildings in the Fort Worth, Texas CBD. The loan transferred to the special servicer in June 2021 for maturity default and the borrower has been compliant and sent all requested information. The largest tenant, Alcon (68,000 square feet (sf)), vacated in January 2021 causing a large occupancy rate decrease and thus hindering refinancing options. The borrower has been working to backfill the vacant space to stabilize property while seeking refinance options and the special servicer has “full payoff” listed as the workout strategy. Per the servicer, the current net operating income debt service coverage ratio is below breakeven.

Louisiana Tower (Prospectus ID#33 – 19.6% of the trust balance) is secured by the leasehold interest in a 21-story Class B office building and adjacent parking garage in Shreveport, Louisiana. Improvements were constructed in 1984 and the office building features a 461-space parking garage. The loan transferred to the special servicer in January 2021 due to imminent default related to the maturity date. The borrower and special servicer are reviewing sale options and a potential discounted payoff option. The June 2021 rent roll showed the property was 28.1% occupied with an average rent of $11.86 psf, a substantial decline from the September 2019 rent roll occupancy rate and average rental rate of 70.8% and $12.04 psf, respectively. Occupancy at the property has continued to decline due to several oil and gas related tenants vacating the property. The special servicer noted the borrower executed 13 letters of intent for 41,858 sf (12.2% of net rentable area (NRA)) since February 2021 and leases are subject to borrower approval. A Downtown Shreveport listing advertised 111,959 sf of available vacant space, totaling 32.6% of NRA, with asking rents ranging between $7.26 psf to $16.00 psf. The property was reappraised in February 2021 for $10.7 million, down 58.9% from the issuance value of $26.0 million. In a hypothetical liquidation scenario, DBRS Morningstar projects an implied loss severity in excess of 30.0%.

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.

Class FX 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.

The DBRS Morningstar Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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.

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