DBRS Morningstar Downgrades Ratings on Four Classes, Withdraws Rating on One Class of J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-WLDN

DBRS Morningstar, Inc. (DBRS Morningstar) downgraded its ratings on four classes of the Commercial Mortgage Pass-Through Certificates, Series 2012-WLDN issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-WLDN as follows:

-- Class A to BB (low) (sf) from A (sf)
-- Class B to B (low) (sf) from BBB (sf)
-- Class C to CCC (sf) from BB (high) (sf)
-- Class X-A to BB (sf) from A (high) (sf)

With this review, DBRS Morningstar removed all of the classes from Under Review with Negative Implications, where they were placed on October 7, 2020.

DBRS Morningstar also discontinued and withdrew the rating on Class X-B as it references Class C, which carries a CCC (sf) rating. The trends on Classes A, B, and X-A are Negative. The rating on Class C does not carry a trend.

The rating downgrades and Negative trends are reflective of the elevated risk of loss to the trust given the updated appraised value reported on the super-regional mall that secures the trust’s only loan, as well as the uncertain road to recovery for regional malls, which have been severely affected by the Coronavirus Disease (COVID-19) pandemic. Since the deal was last reviewed, the loan returned to the master servicer in December 2020 after it received a modification that included a new cash waterfall in order to repay all deferred payments and a waiver of pandemic-related debt service coverage ratio triggers for the last three quarters of 2020. It also granted the borrower authority to provide reasonable rent relief through December 2020 as well as a conditional waiver of all default interest and/or late fees. The 2020 appraisal reported an as-is value of $216.0 million, which represents a -64% variance from the respective value at issuance and an as-is loan-to-value ratio of 111.5%.

The loan sponsor is The Pyramid Companies (Pyramid), the largest privately held shopping mall developer in the Northeast United States; its affiliate, Pyramid Management Group, LLC, provides management services. The subject is one of several commercial mortgage-backed security (CMBS) loans backed by malls in the sponsor’s portfolio that transferred to special servicing amidst the pandemic and are in the process of obtaining, or have already obtained, some form of relief. As of the July 2021 remittance, there are five Pyramid mall loans that remain in special servicing; all five malls are seeking pandemic relief extensions.

The transaction is collateralized by a $270.0 million, 10-year, fixed-rate, first-lien mortgage loan secured by the fee-simple interest in the Walden Galleria, a super-regional shopping mall in Cheektowaga, New York. The borrower used loan proceeds along with a $30.0 million senior mezzanine loan and a $50.0 million junior mezzanine loan to refinance $291.0 million of existing debt and return $54.3 million of equity back to the sponsor. The loan was structured with an initial three-year interest-only (IO) period, followed by amortizing loan payments on a 30-year schedule with a final balloon principal payment due on May 1, 2022. As of the July 2021 remittance report, the loan balance had amortized down to $240.9 million.

While the loan is current and performing under the terms of the modification as of the most recent remittance, the mall’s performance had been declining over the past few years as several anchor tenants filed bankruptcy and/or vacated. The coronavirus pandemic brought about forced closures and other distancing restrictions, which further depressed cash flow in 2020. Of particular concern, the mall has historically relied heavily on traffic from shoppers from Canada and, with the extended closure of the Canadian-U.S. border throughout the pandemic, foot traffic was paralyzed, adding strain to the already-distressed mall sales. The year-end (YE) 2019 net cash flow (NCF) of $27.6 million was 13.7% below the issuance level of $31.9 million and the mall reported an 82% occupancy. The YE2020 NCF further declined to $14.4 million, which was 55% below the issuance level, and occupancy fell to 75%.

Walden Galleria is a super-regional mall that is considered the premier shopping destination in the Buffalo metropolitan statistical area. Of the subject mall’s 1.6 million square feet (sf) of space, approximately 1.2 million sf serves as collateral for the subject loan. Anchors include JCPenney, Dick’s Sporting Goods (on a ground lease), Regal Cinemas, Best Buy, and Forever 21. In addition to the current anchor mix, a Sears was in occupancy at issuance; an affiliate owned the store, which was closed and released from the collateral in January 2018. Noncollateral anchors include Macy’s and a former Lord & Taylor box, which was being marketed as a co-working office space on cbre.com as of August 2021. Although JCPenney has filed for bankruptcy, it remains in operation at the subject property with a recent lease amendment that will expire in April 2024.

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 X-A is an interest-only (IO) certificate 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 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 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.

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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