DBRS Morningstar Confirms Ratings on All Classes of MSBAM Commercial Mortgage Securities Trust 2012-CKSV

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

-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (low) (sf)
-- Class B at A (high) (sf)
-- Class C at BBB (low) (sf)
-- Class D at B (high) (sf)
-- Class CK at BBB (low) (sf)

All trends are Stable. The rating confirmations and Stable trends reflect DBRS Morningstar’s expectation that performance will remain stable following the recent modification and transfer back to the master servicer for both of the underlying loans, Clackamas Town Center (Clackamas) and Sun Valley Shopping Center (Sunvalley), as of the first quarter of 2023. The loans transferred to special servicing ahead of the scheduled 2022 maturity dates. The approved loan modifications extend the maturity dates to 2024, subject to certain criteria specific to each loan, as further discussed below. As part of the loan modifications, any special servicing fees incurred to date or going forward will be the borrower’s responsibility.

All certificates rated by DBRS Morningstar, except for Class CK, are pooled certificates backed by two separate loans. Both loans are secured by a regional mall. There is also one rake bond, the Class CK certificate, which is backed by the Clackamas loan only. As of the April 2023 remittance, the Clackamas loan had a senior component balance of $186.3 million and a subordinate component balance of $24.6 million, while the Sunvalley loan had a senior balance of $150.1 million. The loans are not cross-collateralized or cross-defaulted. The Clackamas loan is sponsored by a joint venture between Brookfield Property Partners L.P. and Teacher’s Retirement System of the State of Illinois, while the Sunvalley loan is sponsored by Simon Property Group after its acquisition of The Taubman Realty Group Limited Partnership in December 2020.

The weaker of the two underlying loans, Sunvalley, is secured by a 1.2 million-square-foot (sf) portion of a 1.4 million-sf regional mall in Concord, California. Collateral anchors include JCPenney, Macy’s, and Macy’s Men & Home as well as a noncollateral Sears, which remains open. At issuance, the subject was valued at $350.0 million; however, the August 2022 appraisal obtained by the special servicer showed the value had since declined to $170.0 million on an as-is basis and $187.0 million on a stabilized basis. The loan modification approved by the servicer as of February 2023 included a two-year initial maturity extension to September 2024 and one additional one-year extension option. The extension options are subject to a payment of 1.0% of the outstanding loan amount at the time of extension and the satisfaction of a trailing 12-month debt-yield minimum threshold of 11.0% during the extension period. The borrower was also required to remit $2.5 million to the reserve accounts at the closing of the loan modification with those funds to be used for leasing costs incurred over the extension periods. The loan will remain in cash management during the full extension period.

As of the December 2022 rent roll, the Sunvalley property was 95.6% occupied, remaining stable compared with 93.0% at YE2021 and 94.0% at YE2020. The largest collateral tenants are JCPenney (17.8% of the net rentable area (NRA), lease expiry in May 2027), Macy’s (16.8% of the NRA, lease expiry in July 2028), and Macy’s Men & Home (14.9% of NRA, lease expiry August 2029). According to the YE2022 tenant sales report, in-line tenants reported sales of $392 per square foot (psf), compared with the YE2021 and YE2020 figures of $415 psf and $292 psf, respectively. Although the collateral has seen improvement from the lows of the Coronavirus Disease (COVID-19) pandemic at YE2020, sales remain below the issuance sales of $453 psf. As of the most recent financial reporting, the YE2022 debt service coverage ratio (DSCR) was reported at 1.25 times (x), relative to the YE2021 and YE2020 DSCRs of 0.96x and 1.19x, respectively. At contribution, the loan reported a net cash flow (NCF) of $23.8 million, compared with the pre-pandemic NCF of $17.8 million at YE2019, the YE2021 NCF of $10.9 million, and the YE2022 figure of $14.4 million.

Although the loan modification and new commitment by the sponsor in the capital contributed to close the loan modification are encouraging signs, DBRS Morningstar notes the loan remains challenged given the sales declines from issuance, exposure to Sears (which is down to a handful of stores remaining), and value decline implied by the August 2022 appraisal. In the analysis for the loan with this review, DBRS Morningstar considered a stressed value that was based on a haircut to the YE2022 NCF of $14.4 million and a capitalization rate of 9.3%, which is in line with the appraiser’s figure. The resulting DBRS Morningstar value of $152.2 million suggests a loan-to-value (LTV) ratio of approximately 100% and is below the as-is value of $170.0 million in the August 2022 appraisal. Positive and negative qualitative adjustments to the LTV sizing benchmarks (which combined for a negative adjustment of 0.50%) were carried forward from the analysis in 2020 when the ratings were assigned.

The Clackamas loan is secured by a 631,537-sf portion of a 1.4 million-sf, two-level, super-regional mall in Happy Valley, Oregon. This is the clearly stronger performer of the two assets in the pool, but there have still been some modest declines in performance since issuance when the subject was valued at $370 million. The special servicer obtained an updated appraisal dated October 2022 that showed the value declined to $342 million on an as-is basis. The appraiser estimated the stabilized value was flat from the issuance figure of $370 million. The terms of the loan modification extended the maturity to October 2024, which required the borrower to pay the loan down by $5 million paydown, consent to cash management and the remittance of all excess cash to the lender, and several other minor provisions.

As of the January 2023 rent roll, the collateral portion of the property was 91.0% occupied with 16.2% of the NRA scheduled to roll within the next 12 months. The largest collateral tenants include Century Theatres (11.1% of the NRA, lease expiry in December 2022), Dave & Buster's (5.7% of the NRA, lease expiry January 2030), and Forever 21 (5.3% of the NRA, lease expiry in January 2024). An update has been requested for the Century Theatres lease expiration in December 2022; the tenant remains in place as of May 2023 according to the property’s website. The noncollateral anchor tenants include Macy's; Macy's Home Store; JCPenney; and Dick's Sporting Goods, which backfilled the previously dark Sears space. The noncollateral Nordstrom permanently closed in August 2020; however, the tenant continues to pay rent according to the January 2023 rent roll. According to the February 2022 tenant sales report (most recent report on file with DBRS Morningstar), tenants smaller than 10,000 sf reported YE2021 sales of $561 psf compared with the YE2020 sales figure of $351 psf and YE2019 sales figure of $493 psf. In total, in-line tenants reported YE2021, YE2020, and YE2019 and issuance sales figures of $519 psf, $322 psf, $451 psf, and $432 psf, respectively. As per the most recent financial reporting, the DSCR for the trailing three months ended March 31, 2022, was reported at 2.73x, compared with the YE2021 and YE2020 DSCRs of 2.33x and 2.41x, respectively.

Given the relatively stable performance of the Clackamas asset, DBRS Morningstar maintained the value derived in 2020 when the ratings were assigned. The DBRS Morningstar NCF figure of $21.4 million (based on a haircut to the cash flows reported by the servicer as of YE2019) and capitalization rate of 7.8% resulted in a value of $275.9 million. A positive adjustment of 1.0% was made to the LTV sizing benchmarks to account for the property’s superior position within the market and high-quality build. The value was below the as-is value estimate of $342 million as of the October 2022 remittance, and the resulting LTV of 76.4% on the total debt amount is considered reasonable. Overall, the analysis suggests refinance prospects should be relatively healthy in 2024, particularly following the nearly two years of excess cash flow sweeps required by the loan modification.

The DBRS Morningstar ratings assigned to the pooled Class A-2 is higher than the results implied by the LTV sizing benchmarks. This is largely driven by the high LTV implied by the DBRS Morningstar value for the Sunvalley property. The variance is warranted given the uncertain loan-level event risk for that loan, which has recently shown moderately increased performance with an increased DSCR and capital injection by the sponsor as part of the loan modification to extend the maturity. In addition, the DBRS Morningstar value is 10.4% and 18.6% below the appraiser’s as-is and stabilized value estimates, respectively, suggesting there is some cushion against the market-based values in the analysis. Finally, should the Sunvalley loan be liquidated, the DBRS Morningstar value suggests the most junior pooled certificate rated by DBRS Morningstar (Class D), would fully absorb any loss and that certificate currently has a rating of B (high) (sf), which indicates highly speculative credit quality.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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).

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.

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.

DBRS Limited
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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].