Approximately $585 million of structured securities affected
New York, December 01, 2020 -- Moody's Investors Service, ("Moody's") has
affirmed the ratings on two classes and downgraded the ratings on six
classes in Morgan Stanley Capital I Trust 2011-C2, Commercial
Mortgage Pass-Through Certificates, Series 2011-C2
as follows:
Cl. A-4, Affirmed Aaa (sf); previously on Apr
14, 2020 Affirmed Aaa (sf)
Cl. B, Downgraded to A1 (sf); previously on Apr 14,
2020 Affirmed Aa2 (sf)
Cl. C, Downgraded to Baa2 (sf); previously on Apr 14,
2020 Affirmed A2 (sf)
Cl. D, Downgraded to Ba2 (sf); previously on Apr 14,
2020 Downgraded to Baa3 (sf)
Cl. E, Downgraded to Caa1 (sf); previously on Apr 14,
2020 Downgraded to B1 (sf)
Cl. F, Downgraded to C (sf); previously on Apr 14,
2020 Downgraded to Caa2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on
Apr 14, 2020 Affirmed Aaa (sf)
Cl. X-B*, Downgraded to Caa2 (sf); previously
on Apr 14, 2020 Affirmed Caa1 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The rating on one P&I class was affirmed because the class's
significant credit support and the transaction's key metrics,
including Moody's loan-to-value (LTV) ratio, Moody's
stressed debt service coverage ratio (DSCR) and the transaction's
Herfindahl Index (Herf), being within acceptable ranges.
The ratings on five P&I classes were downgraded due to higher anticipated
losses and increased refinance risk due to the significant exposure to
two regional mall loans (41% of the pool) and one Houston office
property (7% of the pool), which experienced a significant
decline in occupancy. All of the loans in the pool have a maturity
date on or prior to June 2021. The two largest remaining loans
in the pool, Deerbrook Mall ($129 million, 21%
of the pool) and Ingram Park Mall ($122 million, 20%
of the pool), are secured by regional mall properties and may exhibit
higher cash flow volatility and higher refinancing risk compared to other
major property types.
The rating on one IO class, Cl. X-A, was affirmed
based on the credit quality of the referenced classes.
The rating on one IO class, Cl. X-B, was downgraded
due to a decline in the credit quality of the referenced classes.
Cl. X-B references Cl. B through Cl. J,
including Cl. G, Cl. H and Cl. J which are
not rated by Moody's.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of commercial real estate
from the current weak US economic activity and a gradual recovery for
the coming months. Although an economic recovery is underway,
it is tenuous and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high. Stress on commercial real estate
properties will be most directly stemming from declines in hotel occupancies
(particularly related to conference or other group attendance) and declines
in foot traffic and sales for non-essential items at retail properties.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Moody's rating action reflects a base expected loss of 12.8%
of the current pooled balance, compared to 5.1% at
Moody's last review. Moody's base expected loss plus realized
losses is now 9.1% of the original pooled balance,
compared to 5.3% at the last review. Moody's
provides a current list of base expected losses for conduit and fusion
CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range can indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant
amount of loan paydowns or amortization, an increase in the pool's
share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline
in the performance of the pool, loan concentration, an increase
in realized and expected losses from specially serviced and troubled loans
or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in rating all classes except interest-only
classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS"
published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778
and "Moody's Approach to Rating Large Loan and Single Asset/Single
Borrower CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1190579.
The methodologies used in rating interest-only classes were "Approach
to Rating US and Canadian Conduit/Fusion CMBS" published in September
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778,
"Moody's Approach to Rating Large Loan and Single Asset/Single Borrower
CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1190579
and "Moody's Approach to Rating Structured Finance Interest-Only
(IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179.
Please see the list of ratings at the top of this announcement to identify
which classes are interest-only (indicated by the *).
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
DEAL PERFORMANCE
As of the November 15, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 49% to $615
million from $1.21 billion at securitization. The
certificates are collateralized by 38 mortgage loans ranging in size from
less than 1% to 21% of the pool, with the top ten
loans (excluding defeasance) constituting 68% of the pool.
Eighteen loans, constituting 23.7% of the pool,
have defeased and are secured by US government securities.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity.
Loan concentration has an important bearing on potential rating volatility,
including the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of six,
compared to seven at Moody's last review.
As of the November 2020 remittance report, the entire portfolio
was current or within their grace period on their debt service payments.
Four loans, constituting 10% of the pool, are on the
master servicer's watchlist. The watchlist includes loans
that meet certain portfolio review guidelines established as part of the
CRE Finance Council (CREFC) monthly reporting package. As part
of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues that
could affect performance.
One loan, the Town West Square loan, has been liquidated from
the pool, resulting in an aggregate realized loss of $32
million (for a loss severity of 71%). Two loans, constituting
1.5% of the pool, are currently in special servicing.
One of the specially serviced loans, representing 0.6%
of the pool, transferred to special servicing since March 2020.
The largest specially serviced loan is the 192nd Avenue Plaza loan ($5.5
million), which is secured by a 35,000 square foot (SF) mixed-use
property located in Camas, Washington, approximately 13 miles
northeast of Portland, Oregon. The loan was transferred to
special servicing in June 2017 due to a non-monetary default.
The borrower entered into a lease with global co-working space
company Regus without the lender's consent that allowed for a profit-sharing
rent structure with minimal guaranteed rental payment. The borrower
has been unwilling to terminate the Regus lease. As of February
2020, the property was 96% leased, up from 83%
leased as of December 2017 and only 51% as of December 2016.
The loan remains current as of the November 2020 remittance date and matures
in January 2021. The special servicer continues to monitor the
loan performance.
The second specially serviced loan is the 157 Chambers Street loan ($3.4
million), which is secured by a 5,087 SF street-level
retail space located in the Tribeca neighborhood of New York City,
built in 1931 and most recently renovated in 2006. Occupancy decreased
to 9.3% in June 2020 from 100% the prior year after
the largest tenant, Petco, vacated their space at their lease
expiration in May 2020. The loan transferred to special servicing
in November 2020 due to the decline in occupancy. The loan matures
February 2021 and due to the property's performance and broader
trends in non-essential street level retail, the loan in
unlikely to pay off at its maturity date.
Moody's has also assumed a high default probability for two loans,
Ingram Park Mall (20% of the pool) and Three Riverway Plaza (7.3%
of the pool), due to the declining performance and upcoming refinance
risk. The two loans are further described below, and Moody's
estimates an aggregate $74 million loss for the specially serviced
and troubled loans (42% expected loss on average).
The credit risk of loans is determined primarily by two factors:
1) Moody's assessment of the probability of default, which is largely
driven by each loan's DSCR, and 2) Moody's assessment of the severity
of loss upon a default, which is largely driven by each loan's loan-to-value
ratio, referred to as the Moody's LTV or MLTV. As described
in the CMBS methodology used to rate this transaction, we make various
adjustments to the MLTV. We adjust the MLTV for each loan using
a value that reflects capitalization (cap) rates that are between our
sustainable cap rates and market cap rates. We also use an adjusted
loan balance that reflects each loan's amortization profile.
The MLTV reported in this publication reflects the MLTV before the adjustments
described in the methodology.
Moody's received full year 2019 operating results for 99% of the
pool, and partial year 2020 operating results for 96% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 90%, compared to 84%
at Moody's last review. Moody's conduit component excludes
loans with structured credit assessments, defeased and CTL loans,
and specially serviced and troubled loans. Moody's net cash
flow (NCF) reflects a weighted average haircut of 24.3%
to the most recently available net operating income (NOI). Moody's
value reflects a weighted average capitalization rate of 10.1%.
Moody's actual and stressed conduit DSCRs are 1.45X and 1.25X,
respectively, compared to 1.55X and 1.32X at the last
review. Moody's actual DSCR is based on Moody's NCF
and the loan's actual debt service. Moody's stressed
DSCR is based on Moody's NCF and a 9.25% stress rate
the agency applied to the loan balance.
The top three performing loans represent 48% of the pool balance.
The largest loan is the Deerbrook Mall Loan ($129.1 million
-- 21.0% of the pool), which is secured by a
554,500 SF portion of a 1.2 million SF regional mall located
in Humble, Texas, approximately 13 miles northwest of the
Houston CBD. The property is currently anchored by Dillard's,
Macy's, JC Penney and AMC Theatres. AMC Theatres is the only
anchor space included in the loan collateral. The property has
one vacant non-collateral anchor, a former Sears which closed
in April 2020. Additional major collateral tenants include Forever
21 (84,325 SF; lease expiration January 2024) and Dick's Sporting
Goods (82,081 SF; lease expiration December 2027). As
of June 2020 the collateral was 95% occupied, compared to
90% in December 2019 and 96% in December 2018. As
of June 2020, inline space was 90% leased, compared
to 93% in September 2018 and 97% in December 2017.
While the property's revenue has declined year over year in 2019,
the property's 2019 net operating income (NOI) was 32% higher than
underwritten levels and the 2019 actual NOI DSCR was above 2.00X.
The property was temporarily closed as a result of the coronavirus pandemic
but is currently opened. The property's comparable in-line
sales for the trailing twelve month (TTM) period ending June 2020 were
$430 compared to $521 for the full year in 2019.
The loan is amortizing on a 30-year schedule and has amortized
16% since securitization. The loan is sponsored by Brookfield
Properties. Moody's LTV and stressed DSCR are 101% and 1.15X,
respectively, compared 83% and 1.27X at the last review.
The loan remains current but faces increased refinance risk at its April
2021 maturity date given the current retail environment.
The second largest loan is the Ingram Park Mall Loan ($122.5
million -- 19.9% of the pool), which
is secured by a 375,000 SF portion of a 1.1 million SF regional
mall located in San Antonio, Texas. The property is currently
anchored by Dillard's, Macy's, and J.C. Penney,
all of which own their own improvements. The property currently
has two vacant anchors, Sears and Dillard's Home Center, which
closed in 2018 and 2016, respectively. The inline occupancy
was 79% as of June 2020, compared to 91% as of September
2019 and 88% in September 2018. The loan is sponsored by
Simon Property Group. The property's revenues and net operating
income (NOI) have been declining annually since 2015, however,
the property's 2019 NOI was 4% above underwritten levels.
The property is not the dominant mall in the market and competes with
five other malls in the trade area, including the dominant North
Star Mall. The loan is amortizing on a 30-year schedule
and has amortized 15.5% since securitization. The
loan remains current, however, Moody's has identified
this as a troubled loan due to the upcoming maturity risk in June 2021,
the property's recent decline in performance and the significant
competition in its market.
The third largest loan is the Three Riverway Office Loan ($44.9
million -- 7.3% of the pool), which
is secured by a 20-story, Class A office building totaling
approximately 398,000 SF. The property is located in Houston,
Texas and is part of a five-building office park situated in the
northern portion of the Galleria/Uptown Houston submarket. The
property is located within a larger 27-acre master planned development
featuring office, retail, and apartment properties,
as well as a 378-room full-service hotel. As of June
2020, the property was only 54% leased, compared to
57% in December 2019 and 87% at securitization and also
faces additional rollover risk with 18% of the NRA expiring in
the next 12 months. As a result of the declining occupancy,
the property's performance has declined significantly and the actual NOI
DSCR has been below 1.00X for the past three years. The
loan has amortized 15% since securitization and matures in May
2021. The loan remains current, however, Moody's
has identified this as a troubled loan due to the low occupancy,
upcoming balloon risk and elevated delinquencies and vacancy in the Houston
MSA.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Rhett Terrell
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Matthew Halpern
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
