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

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of 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 a trend in commercial mortgage-backed securities (CMBS) ratings. The credit rating confirmations and Stable trends reflect the overall performance of the underlying collateral, as evidenced by the property’s stable occupancy and cash flow, which remain in line with Morningstar DBRS’ expectations at the last rating action in May 2023.

The fixed-rate loan is secured by the fee-simple interest in the Walden Galleria, a 1.3 million square-foot (sf) super-regional shopping mall located in Cheektowaga, New York. The mall is currently anchored by JCPenney (collateral) and Macy’s (noncollateral), and major tenants include Dick’s Sporting Goods (on a ground lease), Regal Cinemas, Dave & Buster’s, and Zara, among others. Sears (noncollateral) and Lord & Taylor were anchor tenants at issuance, but they closed their stores at the subject property in 2018 and 2020, respectively. Primark opened a 34,000-sf store in the former Sears space in April 2023. More recently, J.C. Penny and Dick’s Sporting Goods extended their leases to January 2029 and April 2029, respectively. The loan sponsor is The Pyramid Companies, the largest privately held shopping mall developer in the Northeastern U.S.; its affiliate, Pyramid Management Group, LLC, provides management services.

The loan was originally structured with a 10-year term. In February 2022, the loan transferred to special servicing for a second time because of imminent maturity default as the loan was not able to secure refinancing 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 to be ordered 90 days prior to the new November 2024 maturity). Additional terms included the conversion of loan payments to interest-only (IO), and a cash trap that will remain in effect until the loan is paid in full. The loan was returned to the master servicer in September 2022. Since then, the loan has continued to perform in accordance with the modification terms. The March 2024 loan balance of $226.7 million represents a collateral reduction of 16.0%, as a result of loan amortization prior to the modification and principal curtailments.

Despite the mall’s cash flow declines since the start of the COVID-19 pandemic, which were predominantly driven by several anchor and non-anchor tenants that filed for bankruptcy and/or vacated, property operations have remained sufficient to cover debt service payments since 2021. The financial statement for the trailing nine months ended September 30, 2023, indicated an annualized net cash flow (NCF) of $23.8 million. Although this figure is below the YE2022 NCF of $25.2 million and the YE2021 NCF of $30.6 million, it is higher than the NCF of $21.6 million previously derived by Morningstar DBRS. The decline from 2022 is predominantly driven by a 14.1% increase in real estate taxes, as well as a 23.3% decrease in percentage rent and 17.7% decrease in other income. Additionally, the higher YE2021 NCF was partially attributed to the collection of deferred rents from 2020.

According to the September 2023 rent roll, the property was 89.3% occupied, an improvement from the January 2023 and YE2021 figures of 81.7% and 71.3%, respectively. Morningstar DBRS counted more than 30 tenants, representing 11.0% of the net rentable area (NRA), that have lease expirations through the next 12 months, including DSW (1.8% of NRA; lease expiration in September 2024) and Apple (0.6% of the NRA; lease expiration in January 2025). Morningstar DBRS believes a portion of these tenants will renew and/or extend their leases given recent leasing activity and the mall’s stable sales history. According to a recent update provided by the servicer, the in-line sales (excluding Apple) for the YE2023 period were $510 per square foot (psf), which represents stable and improving in-line sales relative to prior in-line sales figures.

In line with the previous rating action, in the analysis for this review, Morningstar DBRS considered the August 2022 appraised value of $219.0 million. The appraised value represents loan-to-value ratio (LTV) of 103.8% on the current loan balance, and an implied capitalization rate of 10.9% based on the annualized NCF of $23.8 million. Morningstar DBRS maintained a positive qualitative adjustment to the final LTV sizing benchmarks used for this credit rating analysis, totaling 0.25% for market fundamentals to reflect the property’s dominant position in the market, with a higher appraisal value psf and total mall size relative to its competitors, according to the August 2022 appraisal.

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 Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), at https://dbrs.morningstar.com/research/427030.

Class X-A is an 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 the North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit 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.

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 Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024),
https://dbrs.morningstar.com/research/428799

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

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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023).

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