DBRS Morningstar Upgrades Ratings on Two Classes, Discontinues Rating on One Class of MSC 2011-C3 Mortgage Trust

DBRS Limited (DBRS Morningstar) upgraded its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by MSC 2011-C3 Mortgage Trust as follows:

-- Class C to AAA (sf) from AA (sf)
-- Class D to AA (low) (sf) from A (sf)

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class E at BBB (sf)
-- Class F at BBB (low) (sf)
-- Class X-B at BB (low) (sf)
-- Class G at B (high) (sf)

In addition, DBRS Morningstar discontinued its rating on Class B as it was paid out as of the September 2021 remittance. DBRS Morningstar changed the trend on Class E to Negative from Stable. In addition, the trends on Classes F, X-B, and G remain Negative, while the trends on Classes C and D remain Stable.

The rating upgrades reflect the significant collateral reduction in the last nine months. Since December 2020, 34 loans were repaid, resulting in a collateral reduction to $180.4 million as of the September 2021 remittance from $637.8 million. As of September 2021, five loans remain in the pool. The pool is now concentrated in two loans, Westfield Belden Village (Prospectus ID#2, 51.0% of the pool) and Oxmoor Center (Prospectus ID#3, 43.5% of the pool), both of which are specially serviced loans secured by regional mall collateral. The Negative trends reflect DBRS Morningstar’s concerns with both loans, which are past their respective maturity dates and are in the process of finalizing loan modifications.

The largest loan in special servicing and in the pool, Westfield Belden Village, transferred to special servicing for imminent monetary default in May 2020, and the special servicer is currently negotiating terms for a loan modification. The loan is secured by a portion of a single-level regional mall in Canton, Ohio, which originally served to refinance existing debt for the Westfield Group (Westfield); however, Starwood Capital Group (Starwood) assumed the loan in 2013 as part of its acquisition of seven malls from Westfield. To refinance the portfolio, Starwood raised a significant amount of capital through Israeli-backed bonds that have defaulted, triggering an accelerated payment clause enabling the bondholders to seize control of the assets. A joint venture between Pacific Retail Capital Partners and Golden East Investors won the bid to take over the malls in September 2020. Despite some issues with rent collections and struggling retailers amid the pandemic, collateral occupancy was reported at 96.0% per the June 30, 2021, rent roll. Financials as of May 2021 reported a trailing 12-month (T-12) debt service coverage ratio (DSCR) of 1.53 times (x).

The Oxmoor Center loan transferred to special servicing in July 2021 for maturity default. It is secured by a 941,756-square-foot (sf) regional mall in Louisville, Kentucky, owned and operated by Brookfield Property Partners. The borrower and lender are in the process of discussing a potential loan extension. The property has reported occupancy rates in the low 80% range since 2018 when its collateral Sears (14.8% of net rentable area (NRA)) vacated its space ahead of its lease expiry. A Topgolf has agreed to lease a portion of the space (6.9% of NRA) on a ground lease expected to commence in November 2022 starting at a rental rate of $5.00 per square foot (psf). Although DSCR has trended lower every year since 2016, most recently being reported at 0.89x, the mall did report healthy sales for tenants less than 10,000 sf of $666 psf as of the T-12 period ended May 31, 2021.

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-B 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 [email protected].

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.

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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