Morningstar DBRS Confirms All Credit Ratings on MSC 2011-C3 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by MSC 2011-C3 Mortgage Trust as follows:

-- Class E at BBB (sf)
-- Class F at BB (high) (sf)
-- Class X-B at B (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect Morningstar DBRS’ recoverability expectations for the transaction, which is in the final stages of wind-down with only four loans remaining. Since the last rating action, one loan was repaid in full and another loan, Freedom Village Shopping Center (Prospectus ID#42; 4.2% of the pool) has been fully defeased. As of the January 2024 reporting, the pool’s collateral has been reduced by approximately 93.4% since issuance. Realized losses to the trust total $6.5 million and have eroded 13.3% of the unrated Class H certificate since issuance. None of the remaining loans are in special servicing and all are scheduled to mature in 2026.

The largest loan remaining is Westfield Belden Village (Prospectus ID#2; 91.7% of the current pool balance), which is secured by a 419,000 square foot (sf) portion of an 827,000-sf regional mall in Canton, Ohio. The loan was previously in special servicing in May 2020 for imminent monetary default related to a downgrade of Israeli bonds that backed the subject and other Starwood Retail Partners malls. The loan was ultimately resolved when an agreement was reached to allow holders of the Israeli bonds to take control of the subject mall. The loan was brought current under the modification agreement, with terms including interest-only (IO) payments from July 2021 through December 2022, and a maturity extension to July 2026. The modification also required the loan to be cash managed, with excess funds swept and held for a minimum of 18 months from the November 2021 execution date or until a debt service coverage ratio (DSCR) threshold of 1.25 times (x) was met for six consecutive months. The loan was returned to the master servicer in April 2022.

According to the September 2023 financials, the annualized 2023 net cash flow (NCF) was $9.1 million (reflecting a DSCR of 1.41x ), a slight increase from the YE2022 figure of $8.5 million (a DSCR of 1.32x) but below the NCF of $10.7 million that Morningstar DBRS derived at issuance. The mall is anchored by a collateral Macy’s (29.3% of the collateral net rentable area (NRA), lease expiring in February 2026) and a non-collateral Dillard’s. The noncollateral anchor Sears downsized from approximately 190,000 sf to 73,000 sf in 2019, and the remaining space was substantially backfilled by a combination of three tenants including Dave & Buster’s. Collateral occupancy was 91.8% as of June 2023, stable from the prior year. However, the property’s rollover schedule is concentrated with 77 leases, representing 24.4% of the NRA and 34.6% of base rent, scheduled to expire over the next 12 months. As of January 2024, there is approximately $466,000 in reserves.

At issuance, the collateral was appraised at $159.0 million. An updated appraisal conducted in August 2021 valued the property at $81.6 million. As part of this analysis, Morningstar DBRS stressed the August 2021 appraised value by 15% to test the durability of the ratings, resulting in a stressed value of $69.4 million, implying a loan-to-value ratio of 149.0%. Morningstar DBRS expects that in a default scenario, losses associated with this loan would be contained to the unrated Class H, with implied proceeds sufficient to repay all remaining rated classes. As such, Morningstar DBRS finds that the rated classes are sufficiently insulated from losses, supporting the rating confirmations.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS 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).

Class X-B is an interest-only (IO) certificate that references 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

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

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

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.

Morningstar DBRS 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down, with only four loans remaining. In those cases, the Morningstar DBRS ratings are typically based on a recoverability analysis for the remaining loans.

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://dbrs.morningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.1.0.0 https://dbrs.morningstar.com/research/422859

Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

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

North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

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

Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

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

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