Morningstar DBRS Confirms Credit Ratings on All Classes of WFRBS Commercial Mortgage Trust 2012-C10

DBRS Limited (Morningstar DBRS) confirmed the credit rating on all classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C10 issued by WFRBS Commercial Mortgage Trust 2012-C10 as follows:

-- Class B at AA (low) (sf)
-- Class X-B at BBB (high) (sf)
-- Class C at BBB (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)

The trends on Classes B, X-B, and C are Stable. Classes D, E, and F have credit ratings that generally do not carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

Since Morningstar DBRS' last credit rating action in April 2024, one loan that was previously in special servicing, Philadelphia Industrial Portfolio (Prospectus ID#31), was repaid in full, incurring no realized loss to the trust. As of the February 2025 reporting, only three loans remain in the pool, two of which are in special servicing; however, Morningstar DBRS has concerns regarding the recoverability of all three loans. As such, Morningstar DBRS' analysis was based on a liquidation scenario applied to the remaining loans in the pool, which resulted in approximately $106.4 million in total losses, resulting in a full writedown of the nonrated Class G, as well as Classes E and F, which are rated C (sf), and a partial writedown of Class D, supporting the credit rating confirmation with this review.

The two loans in special servicing, Dayton Mall (Prospectus ID#3; 32.2% of the pool) and Rogue Valley Mall (Prospectus ID#5; 20.5% of the pool), are both secured by portions of regional malls, in Dayton, Ohio and Medford, Oregon, respectively. Both loans failed to repay at their respective maturity dates in Q3 2022 and have since been listed for sale. However, the sale of Rogue Valley Mall has been temporarily put on hold as the property's second-largest tenant, American Freight Furniture, announced its closure of most stores nationwide, including at the collateral. Although the collateral occupancy at both malls has remained stable year over year, hovering around 90.0%, their other performance metrics have been below issuance levels for the past several years. Since the last review, both properties have been reappraised at values lower than Morningstar DBRS' previous estimates. An updated appraisal for Dayton Mall, dated August 2024, valued the property at $36.5 million, 72.3% below its issuance value of $132.0 million, reflecting a loan-to-value ratio (LTV) of 195.0%. The Rogue Valley Mall was reappraised in July 2024 at $31.8 million, 60.3% below its issuance value of $80.0 million, reflecting an LTV of 142.6%. For this review, Morningstar DBRS liquidated both loans based on conservative haircuts to the most recent values, resulting in an implied loss of approximately $82.8 million, or a weighted-average implied loss severity exceeding 70.0%.

The largest loan in the pool, Republic Plaza (Prospectus ID#1; 47.3% of the pool), is secured by a 1.3 million-square-foot (sf), Class A office property, with 48,371 sf of ground-floor retail space, in downtown Denver. The pari passu loan previously transferred to special servicing in November 2022 for imminent default; however, a modification was finalized in June 2023 to extend the maturity date to March 2026 and change to interest-only (IO) debt service payments through the extended term, among other items. The loan subsequently returned to the master servicer as a corrected mortgage, and the borrower continues to abide by the terms of the modification, including the cash management provisions. Since the last review, the borrower has released approximately $9.4 million from replacement and tenant reserves, with $10.9 million remaining per the February 2025 reporting. Property occupancy was reported at 72.5% as of October 2024, an increase from 67.0% in December 2023. However, the largest tenant, Ovintiv USA Inc. (15.9% of the net rentable area (NRA); expiration in April 2033) contractually reduced its footprint from 308,708 sf (22.6% of NRA) in 2022 and gave back another 49,094 sf (3.7% of NRA) in December 2024. Its footprint now stands at 213,240 sf. Additionally, per the Cushman and Wakefield website, approximately 403,065 sf (30.1% of NRA) is currently being marketed for lease at rental rates between $23 per sf (psf) and $28 psf, well below the average asking rent of $34.85 psf for the Central Business District submarket as of Q4 2024, which has a vacancy of 28.9%, per Reis. The December 2022 appraisal value of $298.1 million represents a 44.3% decline from the issuance value of $535.4 million. Although the loan has been modified and is back with the master servicer, Morningstar DBRS believes a loss at resolution remains likely. As such, Morningstar DBRS analyzed the loan under a liquidation scenario, which is based on a stressed haircut to the most recent appraised value given the upcoming tenant rollover and soft submarket conditions, resulting in a loss severity exceeding 20%.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Class X-B is an IO certificate 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 (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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 info-DBRS@morningstar.com.

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 traditional model-based sensitivity was not performed; however, Morningstar DBRS notes that the credit ratings are sensitive to the recoverability assumptions on the three remaining loans that are detailed in the accompanying press release. Should recoverability of the remaining loans be lower than that implied by the stressed values in the latest analysis, credit ratings lower in the capital stack would be those most negatively affected.

DBRS Limited
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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/ North American CMBS Insight Model v 1.2.0.0 (December 13, 2024), https://dbrs.morningstar.com/research/444616

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.