Morningstar DBRS Downgrades Credit Ratings on MSBAM Commercial Mortgage Securities Trust 2012-CKSV, Changes Trends to Negative From Stable

DBRS, Inc. (Morningstar DBRS) downgraded 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 to A (sf) from AAA (sf)
-- Class X-A to A (high) (sf) from AAA (sf)
-- Class X-B to BBB (sf) from AA (low) (sf)
-- Class B to BBB (low) (sf) from A (high) (sf)
-- Class C to B (high) (sf) from BBB (low) (sf)
-- Class CK to B (sf) from BBB (low) (sf)
-- Class D to CCC (sf) from B (high) (sf)

Morningstar DBRS also changed the trends on all classes to Negative from Stable, except for Class D because it has a credit rating that does not typically carry a trend in commercial mortgage-backed security (CMBS) credit ratings.

The subject transaction is backed by two separate mortgage loans on two regional mall properties known as Clackamas Town Center (Clackamas) and Sunvalley Shopping Center (Sunvalley). All classes except for Class CK are pooled certificates backed by both loans; Class CK is backed by the subordinate B note debt on the Clackamas property. The credit rating downgrades reflect updates to the Morningstar DBRS Values for both collateral malls following the special servicer's final approval of an updated appraisal for Clackamas, which showed a value decline of more than $100.0 million since the previous appraisal in 2022. Both loans have been approved for maturity extensions beyond the initial 2022 maturity dates over the past few years, with both sponsors contributing principal paydown at required intervals as part of the terms. The pooled certificate balances declined by slightly more than $80.0 million as of the March 2025 remittance, with the Clackamas and Sunvalley principal balances representing 57.8% and 42.2% of the pooled trust balance, respectively. The Negative trends reflect Morningstar DBRS' view that the as-is values of both collateral malls could further deteriorate over the remaining life of the transaction.

The Clackamas loan is sponsored by an affiliate of Brookfield Property Partners L.P. (Brookfield; rated BBB (low) with a Stable trend), which acquired the Portland, Oregon, area mall as part of its acquisition of GGP Inc. in 2018. The loan recently transferred back to the special servicer in October 2024 as part of the ongoing negotiations between the sponsor and the special servicer to address the extended October 2024 maturity date. The special servicer recently finalized the January 2025 appraisal obtained as part of that process, which showed an as-is value of $230.0 million, down from the October 2022 appraised value of $342.0 million. The primary driver for the value decline between the appraisals is that the appraiser used a capitalization (cap) rate of 9.0% in January 2025, up from 7.0% in 2022. Other contributing factors were comparable property sales since 2022 and declines in sales per square foot for the mall. The servicer reported that negotiations are ongoing regarding the loan maturity and, as of the March 2025 reporting, the loan was reportedly current on monthly payments.

The servicer's reporting showed a generally stable performance for the Clackamas property, which Morningstar DBRS generally views as the stronger of the two collateral malls in this transaction. At YE2023, the net cash flow (NCF) was reported at $22.5 million, down from $23.1 million at YE2022 but up from the NCF reported for 2020 and 2021. The debt service coverage ratio (DSCR) was relatively consistent at 2.56 times (x) for YE2023 and 2.34x for Q3 2024. Clackamas is one of two regional malls in Portland and its occupancy rate has consistently been reported at or higher than 96.0% for the past several years. None of the subject mall's department store anchors, which currently include Macy's, Macy's Home Store, and JCPenney, are collateral in the transaction. A fourth anchor, Nordstrom, has been dark since 2020. The other regional mall in Portland, Washington Square, is approximately 20 miles west of Clackamas and is owned and operated by Macerich Real Estate Co. Washington Square is anchored by Nordstrom, JCPenney, and Macy's, and is superior to Clackamas in terms of tenant mix, surrounding area incomes, and overall aesthetic.

The Morningstar DBRS Value for Clackamas was $275.9 million when credit ratings were assigned in 2020. The Morningstar DBRS NCF of $21.4 million in 2020 was based on a haircut to the YE2019 NCF, given the cash flow declines in 2020, and a cap rate of 7.75% was applied. Morningstar DBRS' analysis included the Morningstar DBRS Value of $275.9 million for credit rating actions between 2020 and 2024 as the figure was more conservative than that in the October 2022 appraisal, and the in-place cash flows continued to hover near the Morningstar DBRS NCF derived in 2020. However, given the appraisal's approach in January 2025, which included a significantly higher cap rate than Morningstar DBRS used, the valuation approach was updated with this review to reflect a Morningstar DBRS NCF of $18.4 million, approximately $4.0 million lower than the YE2023 NCF of $22.5 million, and a cap rate of 10.0% (a 100-basis point stress to the appraiser's baseline cap rate). The resulting Morningstar DBRS Value of $184.0 million represents a haircut of 22.0% to the January 2025 appraised value of $230.0 million and a more than 30.0% decline from the Morningstar DBRS Value derived in 2020. The implied loan-to-value (LTV) ratio on the total debt amount of $186.8 million ($165.0 million senior debt and $21.8 million junior debt) is 101.5% compared with the implied LTV of 81.0% in the January 2025 appraisal.

The Sunvalley property is in Concord, California, and is approximately 20 miles northwest of Oakland, California. Simon Property Group, Inc. (Simon) acquired the loan-sponsor affiliate, Taubman Centers, Inc., in 2020. The sponsor recently exercised a 12-month extension option to push the maturity to September 2025. The mall is anchored by Sears, Macy's, Macy's Men's/Home, and JCPenney and, despite generally healthy occupancy rates since issuance, the property never fully recovered from the cash flow declines that began amid the coronavirus pandemic in 2020. Most recently, the servicer reported a YE2024 NCF of $13.7 million with a DSCR of 1.19x, down from $15.9 million and 1.34x, respectively, at YE2023. Prior to this credit rating action, the Morningstar DBRS Value was most recently updated as part of the May 2023 credit rating action to reflect a Morningstar DBRS NCF of $14.1 million and a cap rate of 9.25%. The resulting Morningstar DBRS Value of $152.2 million represents a haircut of 10.5% to the November 2022 appraised value of $170.0 million.

Given the appraised value decline with a significantly increased cap rate in the appraiser's analysis for the Clackamas property as of January 2025, the Morningstar DBRS Value for the Sunvalley property was also updated as part of this review. Based on Sunvalley's generally inferior sales performance, location, and overall property quality, Morningstar DBRS applied a cap rate of 11.0% to the Morningstar DBRS NCF of $13.4 million, which was based on a haircut of 2.0% to the YE2024 NCF. The resulting Morningstar DBRS Value of $121.9 million implies an LTV of 112.5% and a haircut of 28.3% to the August 2022 appraised value of $170.0 million (most recent value obtained by the special servicer).

Morningstar DBRS updated its LTV Sizing to reflect its updated Morningstar DBRS Values for each property as described above. Morningstar DBRS applied qualitative adjustments totaling 1.0% for favorable property quality in the LTV Sizing for Clackamas. The LTV Sizing for Sunvalley included a -1.5% adjustment for cash flow volatility and a 1.0% adjustment for market fundamentals for a total adjustment of -0.50%. The resulting LTV Sizing Benchmarks supported the credit rating downgrades and trend change to Negative from Stable to reflect the possibility that the collateral property values could continue to decline and that risks could generally continue to increase if Simon or Brookfield ultimately decides to walk away from their respective assets.

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.

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 (February 28, 2025) https://dbrs.morningstar.com/research/448963.

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

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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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 Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025)
https://dbrs.morningstar.com/research/448962
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024)
https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283

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.