DBRS Morningstar Assigns Provisional Ratings to Taubman Centers Commercial Mortgage Trust 2022-DPM

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-DPM to be issued by Taubman Centers Commercial Mortgage Trust 2022-DPM:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class HRR at BB (high) (sf)

All trends are Stable.

The Taubman Centers Commercial Mortgage Trust 2022-DPM single-asset/single-borrower transaction is collateralized by the borrower’s fee-simple interest in Dolphin Mall Miami, a 1,436,118-square foot (sf) Class A super-regional mall approximately 9.0 miles west of Miami International Airport and 13.0 miles west of the Downtown Miami central business district (CBD) in Sweetwater, Florida. The collateral was delivered to market in 2001 and is considered one of the highest volume shopping centers in the United States, with net rental income (NRI) consistently exceeding $90.0 million annually over the three years preceding the onset of the Coronavirus Disease (COVID-19) pandemic (2017 through 2019). While the collateral’s NRI subsided to less than $70.0 million in 2020, the collateral’s 2021 NRI returned to more than $93.0 million, as ongoing travel restrictions and business closures brought on since the onset of the coronavirus pandemic continue to reside.

The collateral is generally considered to be Miami’s largest outlet center, featuring a diverse roster of national outlet brands, big-box retailers, restaurants, and entertainment offerings. The collateral’s diverse roster of anchor tenants include Bass Pro Shops Outdoor World, Polo Ralph Lauren Factory Store, Dave & Buster's, Saks Off Fifth, Burlington Coat Factory, Forever 21, Ross Dress for Less, Nike Factory Store, Old Navy, Marshalls Home Goods, Bowlero, and Cobb Theatres. The transaction sponsor, The Taubman Realty Group LLC, also recently executed a lease with The Cordish Companies to redevelop a row of exterior-facing restaurant-suites near the collateral’s primary entryway into a dining and entertainment venue branded Live! At Dolphin Mall. The Cordish Companies envisions Live! At Dolphin Mall as a gathering space for live music, sports viewing, festivals, and community events, with 31,960 sf of existing interior space and the addition of a 49,418-sf outdoor pavilion. The transaction sponsor is contributing $3.5 million to the project’s $20.0 million budgeted construction costs, with The Cordish Companies contributing the remaining balance. The concept is anticipated to open between the winter of 2022 and the spring of 2023, with outstanding financial obligations of the sponsor reserved for at closing as part of this transaction.

The collateral has maintained stable occupancy trends in recent years, with year-end occupancy averaging 96.2% between 2017 and 2021 and propertywide occupancy never falling below 92.0% over the same period despite store closures related to the ongoing coronavirus pandemic. The collateral’s diverse roster of modestly priced national retailers and proximity to Miami International Airport provides a competitive advantage over the collateral’s appraisal-identified competitive set for attracting demand from international tourism. While the appraisal defines the collateral’s trade area as the area encompassing a 7.0-mile radius around the property, approximately 65.0% to 70.0% of the collateral’s sales have historically been generated from tourist-related activities with a particular draw of international visitors from South America. Travel restrictions brought on by the onset of the coronavirus pandemic caused the ratio of sales derived from tourist activities to fall below 50.0% in 2020 and resulted in comparable in-line sales falling from $915 psf in 2019 to $516 in 2020. However, the appraisal projects that the opening of Live! At Dolphin Mall and a return to pre-pandemic travel restrictions will result in above-average sales increases at the collateral over the coming years. At the time of DBRS Morningstar inspection, representatives of the collateral’s on-site management team also suggested that the collateral was benefiting from increased foot traffic from its local trade area since the onset of the pandemic. All factors considered, the property’s improved 2021 comparable in-line sales of $847 psf further suggest likelihood of the collateral’s recovery to pre-pandemic productivity in the coming years.

Considering the collateral’s favorable location, generally consistent occupancy trends, evidence of recovering in-line sales, strong sponsorship, and ongoing transformation, DBRS Morningstar has a generally positive view of the credit characteristics of the collateral. Nonetheless, like most regional malls, the collateral will likely continue to contend with secular headwinds facing brick-and-mortar retailers in the long run, and the proliferation of e-commerce continues to gain traction globally. Investors should carefully consider the risks associated with investing in securities backed by regional mall properties; DBRS Morningstar published research on November 17, 2020, that highlighted that regional mall delinquencies were approaching $10 billion with an overall delinquency rate of 18.7%. For additional information, please refer to the commentary titled “CMBS Mall Delinquencies Approach $10 Billion, as the Pandemic Heightens Risk for Upcoming Maturities” on DBRS Morningstar's website.

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.

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.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2022), 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 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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