DBRS Morningstar Confirms All Ratings on WFRBS Commercial Mortgage Trust 2012-C9

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2012-C9 issued by WFRBS Commercial Mortgage Trust 2012-C9 as follows:

-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance, despite more recent challenges that have generally been driven by the effects of the Coronavirus Disease (COVID-19) pandemic. At issuance, the transaction consisted of 73 fixed-rate loans secured by 100 commercial and multifamily properties, with a trust balance of $1.05 billion. According to the October 2021 remittance report, 11 loans have paid in full, leaving 62 loans within the transaction. There has been a collateral reduction of 32.5% since issuance, lowering the trust balance to $710.3 million. Defeasance has been substantial, with 21 loans defeased since issuance, representing 34.5% of the pool. There have been minimal losses to date, with the $38.2 million unrated Class G balance at issuance reduced by just under $380,000 as of the October 2021 remittance.

The transaction is concentrated by property type as 16 loans, representing 39.0% of the current trust balance, are secured by retail assets, whereas 10 loans and 18.2% of the current trust balance are secured by lodging assets. In general, the collateral hotels were performing well prior to the pandemic, and low to moderate leverage metrics at issuance have resulted in cushion against what is expected to be a temporary reduction in demand over the near to moderate term.

According to the October 2021 remittance, one loan, Homewood Suites Houston (Prospectus ID#27; 1.5% of the current trust balance) is in special servicing. There are 13 loans, representing 17.3% of the current trust balance, on the servicer’s watchlist. These loans are being monitored for a variety of reasons, including low debt service coverage ratios (DSCR), occupancy, and tenant rollover concerns. The primary driver, however, continues to be hospitality properties, which suffer from sustained downward pressure on DSCR stemming from ongoing disruptions related to the pandemic. Where applicable, the watchlisted loans were analyzed with probability of default penalties to increase the expected loss for this review.

Homewood Suites Houston is secured by a four-story, 123-room extended-stay hotel. The loan transferred to special servicing in October 2020 and became real estate owned (REO) in August 2021. The property is not currently listed for sale. As of the October 2021 reporting period, it is estimated that the loan has accumulated about $930,833 of outstanding servicer advances and ASERs, bringing the loan's total exposure closer to $11.6 million. The most recent appraisal, dated August 2021, valued the property at $9.0 million, down 52% from the appraised value of $18.9 million at issuance. Based on the most recent valuation, DBRS Morningstar projected a loss severity for this REO loan of 42.9%.

There is only one loan within the top 10 of the pool on the servicer’s watchlist: the 888 Bestgate Road (Prospectus ID#9; 3.6% of the current trust balance) loan, which is secured by the borrower’s fee-simple interest in a Class A office building in Annapolis, Maryland. The loan was added to the servicer’s watchlist in August 2019 because of a decline in occupancy at the property. As of the June 2021 reporting period, the occupancy and DSCR have declined substantially to 64.0% and 0.98 times, respectively. The three largest tenants at the property make up 25.7% of net rentable area (NRA) and lease rollover is a concern, with four tenants (11% of the NRA) facing lease expirations between January 2022 and September 2022. That being said, the landlord has signed three new leases for a total of 7,474 square feet (6.35% of the NRA) beginning in February, April, and October 2022.

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.

Classes X-A and X-B 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 – Chesterfield Towne Center (13.3% of the pool)
-- Prospectus ID#9 – 888 Bestgate Road (3.9% of the pool)
-- Prospectus ID#27 – Homewood Suites Houston (1.5% 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.

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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