DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by JP Morgan Chase Commercial Mortgage Securities Trust 2011-C3.
Class B at AAA (sf)
Class C at AA (low) (sf)
Class D at BBB (high) (sf)
Class E at B (sf)
Class F at C (sf)
Class G at C (sf)
Class H at C (sf)
Class J at C (sf)
DBRS Morningstar changed the trends on Classes D and E to Stable from Negative, while the trends on Classes B and C remain Stable. Classes F, G, H, and J have ratings that generally do not carry trends.
The rating confirmations and Stable trends reflect the minimal changes for the remaining loans in the pool since the last rating action. The change in the trends reflects the loans' continued performance-according to the terms of the loan modifications since returning to the master servicer in 2021-and sufficient credit support, relative to the ratings, as demonstrated by the projected recoverable value of the remaining loans in the hypothetical liquidation scenarios described below. As of the January 2023 reporting, two of the original 45 loans remain in the trust with an outstanding trust balance of $223.8 million, reflecting a collateral reduction of 85.1% since issuance, as a result of loan repayments, scheduled amortization, and loan liquidations. The transaction is wind-down with both remaining loans secured by regional malls, owned and operated by affiliates of The Pyramid Companies, located in tertiary markets, that have exhibited performance and value declines since issuance resulting in a barbelled rating profile.
For this review, DBRS Morningstar used hypothetical liquidation scenarios similar to the June 2022 review for both remaining loans, in which an additional stress was applied to the most recent appraisal values reported. The results continued to suggest that Classes F, G, H, and J are the most exposed to loss should a default or liquidation of these loans ultimately occur relative to the DBRS Morningstar-concluded value for the remaining assets.
Holyoke Mall is secured by a 1.6 million-square-foot (sf) regional mall in Holyoke, Massachusetts, anchored by collateral tenants JCPenney, Target, and Burlington, as well as a vacant former Sears space and noncollateral Macy's. The most recent appraisal, dated August 2020, valued the property at $200 million, down from $400 million at issuance. The updated value reflects a trust debt loan-to-value ratio (LTV) of 85.5% based on the outstanding senior note and a whole-loan LTV of 103.0% when factoring in the $35 million mezzanine loan. The loan returned to the master servicer in May 2021 after the servicer rejected the request for a second modification. Occupancy has remained less than 80% since the 2018 departure of anchor tenant Sears, with servicer-reported occupancy of 70.1% as of September 2022, relatively unchanged from 69.0% as of December 2021 and 70.0% as of December 2020. Performance improved throughout 2021 as the YE2021 net cash flow (NCF) was 9.0% more than the YE2019 NCF, but remained 20% less than issuance levels. As of the most recently reported financials, the loan reported a September 2022 debt service coverage ratio (DSCR) of 1.22 times (x) compared with a YE2021 DSCR of 1.39x and a YE2020 DSCR of 1.15x. The loan will remain on the servicer's watchlist for a servicing trigger event, which will remain in effect until all amounts due on the loan have been paid in full. As of the January 2023 reserve report, the aggregate reserve balance of $6.3 million consisted of approximately $24,000 in the repair reserve and $6.2 million in the other account. In its analysis for this review, DBRS Morningstar assumed a hypothetical loss severity on the trust loan of nearly 40%.
Sangertown Square is secured by an 894,127-sf regional mall in New Hartford, New York, a tertiary market between Utica and Syracuse, anchored by Dick's Sporting Goods, Target, and Boscov's, and has two vacant anchor spaces formerly occupied by JCPenney and Macy's. The loan transferred back to the master servicer in December 2021 following its second modification. Terms included the extension of the interest-only period to September 2022 from August 2020 and the deferral of any accrued amounts owed to be repaid over a 24-month period, beginning January 2021. The most recent appraisal, dated November 2021, valued the property at $19.1 million, representing an 82% decline from the issuance value of $107.0 million. The servicer-reported occupancy rate as of June 2022 remained unchanged at 58.0% from the December 2021 rent roll, down significantly from the 76.0% occupancy rate at YE2020 following JCPenney's departure. Although the second loan modification provided the borrower temporary relief, the decline in value indicates the trust will likely realize a significant loss at resolution. In its analysis, DBRS Morningstar maintained a hypothetical loss severity on the trust loan of nearly 80%.
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 DBRS Morningstar considers ESG factors within the DBRS Morningstar 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/396929> (May 17, 2022).
All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the North American CMBS Surveillance Methodology (October 3, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482>.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down, with only a few remaining loans. In those cases, the DBRS Morningstar ratings are typically based on a recoverability analysis for the remaining loans.
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