DBRS Morningstar Confirms All Ratings of J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-WLDN

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

-- Class X-A at BB (sf)
-- Class A at BB (low) (sf)
-- Class B at B (low) (sf)
-- Class C at CCC (sf)

All trends are Stable, with the exception of Class C, which has a rating that does not typically carry trends in commercial mortgage-backed securities (CMBS) ratings. The rating confirmations and Stable trends reflect the overall stable performance of the underlying collateral, which remains in line with DBRS Morningstar’s expectations.

The transaction is collateralized by a 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. As of April 2023, the loan balance had amortized down to $230.3 million from $270.0 million, representing a collateral reduction of 14.7% since issuance. Walden Galleria is a super-regional mall that is a destination for both local and visitor shopping in the Buffalo metropolitan statistical area. The mall is anchored by JCPenney (collateral) and Macy’s (noncollateral), and major tenants include Dick’s Sporting Goods (on a ground lease), Regal Cinemas, Best Buy, and Forever 21. Sears and Lord & Taylor were anchor tenants at issuance, but they closed their stores at the subject in 2018 and 2020, respectively. The loan sponsor is The Pyramid Companies, the largest privately held shopping mall developer in the Northeast United States; its affiliate, Pyramid Management Group, LLC, provides management services.

At the time of the last rating action, the loan was in special servicing, having recently been modified. The loan transferred to special servicing for a second time in February 2022 because of imminent maturity default as the loan was not able to be refinanced ahead of its May 2022 maturity date. A modification was approved in May 2022, and the terms included an extension through November 2024, with an additional six-month extension option, conditional upon the loan balance being the lessor of $225.0 million or 80.0% of its appraised value (a new appraisal would be ordered 90 days prior to the new November 2024 maturity). In addition, loan payments became interest only (IO), and a cash trap will remain in effect until the loan is paid in full. The loan was returned to the master servicer in September 2022 and continues to perform in accordance with the modification terms.

Despite the mall’s cash flow declines since the start of the Coronavirus Disease (COVID-19) pandemic, which were predominantly driven by several anchor and non-anchor tenants that filed for bankruptcy and/or vacated, property operations have been sufficient to cover debt service payments since 2021. According to the YE2022 reporting, net cash flow (NCF) was $25.2 million (reflecting a debt service coverage ratio (DSCR) of 1.31 times (x)), below the YE2021 NCF of $30.6 million (reflecting a DSCR of 1.87x), but well above the YE2020 NCF of $14.4 million (reflecting a DSCR of 0.68x) and above the most recent DBRS Morningstar derived NCF of $21.6 million. The year-over-year decrease reflects a 9.8% decrease in base rent and a 27.3% drop in expense reimbursements. DBRS Morningstar notes the higher YE2021 NCF was partially attributed to the collection of deferred rents from 2020, which was projected to decline in 2022. Additionally, according to the servicer, Dick’s Sporting Goods has been paying 50% of base rent following the trigger of a cotenancy clause in May 2021.

According to the January 2023 rent roll, the property was 81.7% occupied, an improvement from the YE2022 and YE2021 figures of 79.3% and 71.3%, respectively. DBRS Morningstar noted more than 30 tenants, representing approximately 25.2% of the net rentable area (NRA), have lease expirations scheduled in the next 12 months including JCPenney and Dick’s Sporting Goods. However, based on a recent update from the servicer, only tenants representing 0.4% of the NRA have confirmed they will not renew their leases, while tenants representing approximately 18.4% of the NRA will remain at the mall for at least the next year, including JCPenney. Dick’s Sporting goods has yet to exercise its extension option, which is due May 2023. In addition, Primark has opened a new 34,000-square-foot (2.3% of the NRA) store in the former noncollateral Sears space as of April 2023. For the trailing 12-month period ended August 2022, in line sales were $438 per square foot (psf), which is in line with the YE2021 amount of $437 psf, and slightly surpassing the pre-pandemic YE2019 figure of $422 psf.

An August 2022 appraisal valued the property at $219.0 million. This represents a slight increase from the August 2020 appraised value of $216.0 million, but a 64.0% drop from the issuance value of $600.0 million. The updated appraised value represents a loan-to-value ratio of 105.1% on the current loan balance, and an implied capitalization rate of 9.9% based on the DBRS Morningstar derived NCF.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

Class X-A is an IO certificate that references a single rated tranche. 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating North American CMBS Interest-Only Certificates (December 19, 2022)
https://www.dbrsmorningstar.com/research/407577

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023)
https://www.dbrsmorningstar.com/research/410191

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022) https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022) https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022) https://www.dbrsmorningstar.com/research/402153

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008

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