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

DBRS Limited (Morningstar DBRS) confirmed its credit 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 credit rating confirmations and Stable trends are reflective of Morningstar DBRS' unchanged expectations and credit view since the last credit rating action, as the loans continue to perform according to the terms of their respective modifications in 2023. Both loans, Clackamas Town Center (Clackamas) and Sun Valley Shopping Center (Sunvalley) are scheduled to mature in 2024 and remain with the master servicer following the loan modifications noted at the last rating action. Of the two, Morningstar DBRS views Clackamas as the stronger performer and better positioned to secure takeout financing as it approaches maturity in October 2024. The Sunvalley property continues to face performance challenges, and Morningstar DBRS holds a cautious view of the sponsor's ability to secure takeout financing in 2024. Partially mitigating this concern is Sunvalley's one remaining extension option for a fully extended maturity date of September 2025, subject to certain provisions discussed below. The sponsors' continued commitment to the loans through the loan modification and associated principal paydowns are also mitigating factors; however, Morningstar DBRS will continue to monitor the loans as they approach maturity in the latter half of 2024.

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 2024 remittance, the Clackamas loan had a senior component balance of $175.2 million and a subordinate component balance of $23.1 million, while the Sunvalley loan had a senior balance of $142.8 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. In February 2023, the loan was modified to include 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 loan will remain in cash management during the full extension period.

As of the November 2023 rent roll, the Sunvalley property was 96.1% occupied, compared with 95.6% at YE2022 and 93.0% at YE2021. 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). Within the next 12 months there is moderate rollover risk of 13% of the NRA. According to the YE2023 tenant sales report, in-line tenants reported sales of $350 per square foot (psf), a decline from the YE2022 and YE2021 figures of $392 psf and $415 psf, respectively, and well below issuance sales of $453 psf. As of the trailing nine-month period ended September 30, 2023, the debt service coverage ratio (DSCR) was reported at 1.26 times (x), in line with the YE2022 1.25x and above the 0.96x at YE2021. 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.

In the analysis for the loan with this review, DBRS Morningstar maintained its stressed value of $152.2 million derived in 2023, which 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 August 2022 appraiser's figure. The resulting DBRS Morningstar value suggests a current loan-to-value (LTV) ratio of approximately 94% and represents a -10.5% variance from 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. Morningstar DBRS has inquired with the servicer regarding the upcoming maturity in September 2024. Based on the most recent full-year financial reporting from 2022, the loan does not meet the 11% debt yield threshold test, indicating the borrower will need to remit a cash paydown or request an additional modification in order to further extend the loan.

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 terms of the loan modification extended the maturity to October 2024, which required the borrower to pay the loan down by $5 million, consent to cash management and the remittance of all excess cash to the lender, and several other minor provisions.

As of the September 2023 rent roll, the collateral portion of the property was 92.7% occupied with approximately 19.0% of the NRA scheduled to roll within the next 12 months. The largest collateral tenants include Century Theatres (11.2% of the NRA, lease expiry in December 2027), Dave & Buster's (5.7% of the NRA, lease expiry January 2030), and Forever 21 (5.3% of the NRA). Forever 21 had a lease expiration in January 2024; however, the tenant is currently listed on the subject'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, per the most recent rent roll, the tenant continues to pay rent in accordance with its lease which is scheduled to expire in October 2025. According to the most recent tenant sales report from YE2022, in-line tenants reported sales of $600 psf compared to the previous year of $559 psf. As per the most recent financial reporting, the DSCR for the trailing nine months ended September 30, 2023, was reported at 2.48x, compared with the YE2022 DSCRs of 2.53x.

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 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 at (January 23, 2024; https://dbrs.morningstar.com/research/427030).

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 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 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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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 (April 15, 2024), https://dbrs.morningstar.com/research/431205

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].