DBRS Morningstar Downgrades Credit Rating on One Class of UBS-Barclays Commercial Mortgage Trust 2012-C4

DBRS Limited (DBRS Morningstar) downgraded the credit rating on one class of the Commercial Mortgage Pass-Through Certificates, Series 2012-C4 issued by UBS-Barclays Commercial Mortgage Trust 2012-C4 as follows:

-- Class E to CCC (sf) from B (low) (sf)

DBRS Morningstar also confirmed its credit rating on the following class:

-- Class F at C (sf)

There are no trends, as the CCC (sf) and C (sf) credit rating categories generally do not carry trends in commercial mortgage-backed securities (CMBS) ratings.

The credit rating downgrade reflects the sustained concerns surrounding the three remaining loans in the pool, all of which are in special servicing and past their respective maturity dates. In addition, since DBRS Morningstar’s last review in January 2023, updated values were provided and are well below issuance values. DBRS Morningstar’s credit ratings are based on a liquidation scenario applied to the loans in the pool, which resulted in approximately $58.0 million in total losses, which is expected to be contained to the nonrated Class G and Class F, which is rated C (sf). However, the projected losses provide little cushion on Class E against additional loss and/or performance volatility on the remaining collateral. In addition, interest shortfalls had begun to accrue on Class E since June 2023, with $0.5 million on Class E and a total of $5.1 million for the trust as per the December 2023 remittance. Given these factors, the CCC (sf) and C (sf) credit ratings on Classes E and F, respectively, are supported.

The loan with the largest loss projection is Newgate Mall (Prospectus ID#6; 60.5% of the pool), which is secured by the in-line space and two anchor spaces of a single-level regional mall in Ogden, Utah. The loan transferred to the special servicer in March 2020, two months prior to its May 2020 maturity date. The property became real estate owned (REO) in April 2021 and is targeted for sale by Q4 2024. In the meantime, management will continue its efforts to renew existing leases, seek prospective tenants, and consider redevelopment options on a sale perspective. Following the departure of the former anchor Sears in 2018, as well as several other tenants, collateral occupancy dropped to 64.3% as of June 2019. Although the occupancy rate increased to 75.0% as per the August 2023 rent roll, DBRS Morningstar notes that the majority of the leases signed in 2023 are short term, and there is a significant number of lease expirations scheduled over the next 12 months. In addition, the noncollateral anchor, Burlington, has confirmed its departure in the near term. According to the June 2023 appraisal, co-tenancy clauses for in-line tenants Foot Locker and Torrid (collectively 1.3% of the net rentable area (NRA)) will be triggered once Burlington vacates.

The June 2023 appraisal valued the property at $22.4 million, up slightly from the October 2022 value of $20.7 million, but approximately 73.0% below the issuance value of $83.0 million. DBRS Morningstar views the uptick in value as evidence that the Davis/Weber Counties submarket vacancy has improved, based on the 2022 vacancy rate of 3.9%, in comparison with the annual average rate of 5.3% for the past 11 years, as stated in the appraisal. However, given the property’s dated appearance, secondary/tertiary location, increased rollover risk, generally challenged lending environment resulting from the rise in interest rates, and the overall lack of liquidity for this property type, DBRS Morningstar maintained a stressed haircut to the most recent appraisal, indicating a loss approaching $43.0 million, which would erode the majority of the unrated Class G certificate.

The second-largest loan, Evergreen Plaza (Prospectus ID#12, 24.4% of the pool), is secured by an anchored retail center in Staten Island, New York. The loan was transferred to special servicing in August 2022 after its grocery store anchor tenant (previously 62.0% of the NRA), vacated in July 2022. As a result, the property’s performance has since declined and the sponsor was unable to secure refinancing ahead of the loan’s December 2022 maturity. The servicer is pursuing foreclosure and a receiver was appointed in August 2023, but, according to several online publications, the property appears to have closed down. Per the December 2023 remittance report, a September 2023 value was noted to be $19.0 million, which is the same value reported in the January 2023 appraisal report. DBRS Morningstar has requested clarification from the special servicer and is awaiting a response. The $19.0 million figure is 50.8% lower than the issuance value of $38.6 million and, per the January 2023 appraisal, an occupancy rate of 23.3% was reported. Given the possibility of the property being fully dark, DBRS Morningstar applied additional stress to the appraisal value, resulting in a loss severity in excess of 42.0%.

The last loan in the pool is secured by Fashion Square (Prospectus ID#23; ¬15.1% of the pool), a mixed-use property in St. Louis, Missouri, comprising 13,000 square feet (sf) of retail space, 75,000 sf of office space, and 72 multifamily units. The loan transferred to special servicing in July 2022 for imminent default and has surpassed its December 2022 maturity date after the sponsor was unable to secure refinancing because of the upcoming lease expiry for office tenant U.S. Bank (42.6% of the NRA) in April 2023; however, according to the August 2023 rent roll, the tenant extended its lease for one year. The property became REO in April 2023 and the servicer is working toward improving occupancy prior to disposition scheduled in December 2024. A September 2023 appraisal valued the property at $11.2 million, a 55.1% drop from the issuance value of $25.0 million. DBRS Morningstar’s liquidation scenario for this loan resulted in a loss severity in excess of 41.2%.

ENVIRONMENTAL, SOCIAL, 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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit 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 credit rating action.
This is a solicited credit rating.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is winding down, with only three loans remaining. In such cases, DBRS Morningstar credit ratings are typically based on a recoverability analysis.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0 (https://www.dbrsmorningstar.com/research/422859)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279

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