DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates Series 2011-C1 issued by UBS-Citigroup Commercial Mortgage Trust, Series 2011-C1 as follows.
Class E at C (sf)
Class F at C (sf)
Class G at C (sf)
All classes have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.
The credit rating confirmations reflect Morningstar DBRS' continued concerns about the remaining loan in the transaction, Poughkeepsie Galleria (Prospectus ID#2), a distressed asset that has experienced significant value declines from issuance. The loan is secured by the borrower's fee-simple interest in a 691,325 square foot (sf) portion of a 1,206,057 sf regional mall in Poughkeepsie, New York. The loan transferred to the special servicer in April 2020 for imminent monetary default and in June 2023 a loan modification was executed. The terms of the loan modification allowed for the extension of the loan maturity to January 2025 with two one-year extension options in addition to the loan remaining in cash management. According to the servicer, a reduced interest payment will be made, which will accrue to the principal as part of an arrangement in place until January 2026. A March 2023 appraisal valued the property at $68.0 million compared with the August 2022 value of $69.1 million and issuance value of $237.0 million. The loan was returned to the master servicer in December 2023 and continues to be monitored on the watchlist.
Non-collateral anchors include Target and Macy's while the spaces previously occupied by collateral Sears and JCPenney anchors have been vacant since 2020. Based on the September 2023 rent roll, the collateral was 57.9% occupied compared with the November 2022 occupancy rate of 60.3%, and issuance occupancy rate of 87.7%. The largest collateral tenants are Regal Cinemas (10.2% of the net rentable area (NRA), lease expires in December 2026), Dick's Sporting Goods (7.8% of the NRA, lease expires in February 2028), and RPM Raceway (5.6% of the NRA, lease expires in November 2024). There is significant tenant rollover risk as tenants representing 19.2% of the NRA have leases that have expired or will be expiring through YE2024. The parent company of Regal Cinemas, Cineworld, emerged from a bankruptcy process and managed to significantly reduce its debt and raise new equity. In addition, 51 of its cinema locations in the U.S. have shuttered but, to date, the subject location remains in operation.
According to the tenant sales report, total in-line sales were reported at $332 per square foot (psf) for the trailing 12 months (T-12) ended June 30, 2023, compared with $336 psf for the T-12 ended November 30, 2022, and the issuance sales figure of $356 psf. Regal Cinema reported sales of $380,000 per screen for the T-12 ended June 30, 2023, while Dick's Sporting Goods reported sales of $250 psf for the same period.
The subject's performance remains depressed with the financials for the trailing nine months ended September 30, 2023, reporting a debt service coverage ratio (DSCR) of 0.87 times (x) compared with the YE2022 DSCR and Morningstar DBRS DSCR of 0.76x and 1.17x, respectively. Although the loan modification provides some relief and time for the property to lease up, considering the subject has been operating at a low occupancy rate for the last few years, any meaningful leasing traction will likely require significant capital injection and Morningstar DBRS expects further challenges for the property at disposition given the low investor appetite for malls located in tertiary markets. For this review, Morningstar DBRS analyzed the loan with a liquidation scenario, resulting in a loss severity in excess of 65%, thereby supporting the credit rating confirmations.
The Marriott Buffalo Niagara loan was previously in special servicing and was liquidated from the trust in April 2023 at a realized loss of $9.7 million, relatively in line with the Morningstar DBRS loss projection at last review.
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 DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.
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 applicable to the credit rating is the North American CMBS Surveillance Methodology (March 16, 2023) https://www.dbrsmorningstar.com/research/410912.
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.
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.
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 CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0 (https://dbrs.morningstar.com/research/422859)
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023;
https://www.dbrsmorningstar.com/research/420984)
North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)
Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://dbrs.morningstar.com/research/415687)
Legal Criteria for U.S. Structured Finance Methodology (December 07, 2023;
(https://www.dbrsmorningstar.com/research/425081/)
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 info-DBRS@morningstar.com.
MACY'S, INC. 
