Research: Rating Action: Moody’s affirms eight and downgrades three classes of COMM 2012-CCRE3

Approximately $627 million of structured securities affected

New York, July 13, 2022 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on eight classes and downgraded the ratings on three classes in COMM 2012-CCRE3 Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2012-CCRE3 as follows:

Cl. A-3, Affirmed Aaa (sf); previously on Oct 2, 2020 Affirmed Aaa (sf)

Cl. A-M, Affirmed A1 (sf); previously on Apr 23, 2021 Downgraded to A1 (sf)

Cl. B, Affirmed Ba2 (sf); previously on Apr 23, 2021 Downgraded to Ba2 (sf)

Cl. C, Affirmed B2 (sf); previously on Apr 23, 2021 Downgraded to B2 (sf)

Cl. D, Affirmed Caa1 (sf); previously on Apr 23, 2021 Downgraded to Caa1 (sf)

Cl. E, Downgraded to Caa3 (sf); previously on Oct 2, 2020 Downgraded to Caa2 (sf)

Cl. F, Downgraded to C (sf); previously on Oct 2, 2020 Downgraded to Caa3 (sf)

Cl. G, Affirmed C (sf); previously on Oct 2, 2020 Downgraded to C (sf)

Cl. PEZ**, Affirmed Ba2 (sf); previously on Apr 23, 2021 Downgraded to Ba2 (sf)

Cl. X-A*, Downgraded to Aa2 (sf); previously on Apr 23, 2021 Downgraded to Aa1 (sf)

Cl. X-B*, Affirmed Caa3 (sf); previously on Apr 23, 2021 Downgraded to Caa3 (sf)

* Reflects interest-only classes

** Reflects exchangeable classes

RATINGS RATIONALE

The ratings on five P&I classes were affirmed because 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), are within acceptable ranges.

The rating on one P&I class was affirmed because the ratings are consistent with Moody’s expected loss.

The ratings on two P&I classes were downgraded due to the anticipated timing of losses of loans in special servicing as well as exposure to underperforming class B regional malls. The largest loan in special servicing, Solano Mall (17% of the pool), is a class B regional mall that is more than 90 days delinquent and Crossgates Mall (14% of the pool) failed to payoff at its original scheduled maturity in May 2022.

The rating on one IO class was affirmed based on the credit quality of the referenced classes.

The rating on one exchangeable class was affirmed due to the credit quality of the referenced exchangeable classes.

The rating on one IO Class was downgraded due to the decline in the credit quality of its reference classes resulting from principal paydowns of higher quality reference classes.

Today’s action has considered how the coronavirus pandemic has reshaped the United States’ economic environment and the way its aftershocks will continue to reverberate and influence the performance of CMBS. We expect the public health situation to improve as vaccinations against COVID-19 increase and societies continue to adapt to new protocols. Still, the exit from the pandemic will likely be bumpy and unpredictable and economic prospects will vary.

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 13.2% of the current pooled balance, compared to 16.0% at Moody’s last review. Moody’s base expected loss plus realized losses is now 10.3% of the original pooled balance, compared to 12.3% 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 all ratings except exchangeable class and interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/74473 and “Large Loan and Single Asset/Single Borrower Commercial Mortgage-Backed Securitizations Methodology” published in May 2022 and available at https://ratings.moodys.com/api/rmc-documents/388873. The principal methodology used in rating the exchangeable class was “Moody’s Approach to Rating Repackaged Securities” methodology published in June 2020 and available at https://ratings.moodys.com/api/rmc-documents/68357. The methodologies used in rating interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/74473, “Large Loan and Single Asset/Single Borrower Commercial Mortgage-Backed Securitizations Methodology” published in May 2022 and available at https://ratings.moodys.com/api/rmc-documents/388873 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *) and exchangeable classes (indicated by the **). Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.

DEAL PERFORMANCE

As of the June 17, 2022 distribution date, the transaction’s aggregate certificate balance has decreased by 50% to $627 million from $1.25 billion at securitization. The certificates are collateralized by 23 mortgage loans ranging in size from less than 1% to 20% of the pool, with the top ten loans (excluding defeasance) constituting 83% of the pool.

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 seven, compared to a Herf of 11 at Moody’s last review.

Ten loans, constituting 40% 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.

Two loans have been liquidated from the pool, resulting in an aggregate realized loss of $47 million (for an average loss severity of 72%). Two loans, constituting 17% of the pool, are currently in special servicing.

The largest specially serviced loan is the Solano Mall Loan ($105.0 million – 16.7% of the pool), which is secured by a 561,000 square feet (SF) portion of 1.1 million SF super regional mall located in Fairfield, California. The mall’s non-collateral anchors include Macy’s, J.C. Penney, and a now vacant Sears, though Dave and Buster’s has backfilled approximately 30,000 SF of the total former Sears space of 149,000 SF. The largest collateral tenant is Edwards Cinemas (11.2% of NRA, lease expiration December 2024). Junior anchor tenant Forever 21 has also closed at this property. Property performance has continued to decline from securitization and both the property’s 2019 and 2020 net operating income (NOI) were 27% lower than securitization levels. The collateral was 77% leased as of December 2020, down from 94% as of December 2019 and 100% leased as of December 2018. The loan is interest only for its entire term and matures in July 2022. The mall re-opened in late May 2020 after its temporary closure, however, the loan transferred to special servicing in June 2020 for imminent default as a result of the coronavirus pandemic and is last paid through its November 2021 payment date. Foreclosure notice was filed on July 16, 2020, and a receiver has been appointed. Loan sponsor Starwood has sold or surrendered many of its US regional mall properties in the past two years.

The other specially serviced loan is secured by a limited service hotel in South Carolina that transferred to special servicing for payment default since November 2019.

Moody’s has also assumed a high default probability for two poorly performing loans, constituting 22% of the pool. Moody’s has estimated an aggregate loss of $79.8 million (a 33% expected loss based on a 65% probability default) from the specially serviced and troubled loans.

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 2020 and 2021 operating results for 94% and 93% of the pool, respectively. Moody’s weighted average conduit LTV is 106%, compared to 99% 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 17% to the most recently available NOI. Moody’s value reflects a weighted average capitalization rate of 9.3%.

Moody’s actual and stressed conduit DSCRs are 1.60X and 1.03X, respectively, compared to 1.62X and 1.13X 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 loans not in special servicing represent 46.4% of the pool balance. The largest loan is the 260 and 261 Madison Avenue Loan ($126.0 million – 20.1% of the pool), which is secured by two Class-B office towers located in midtown Manhattan on Madison Avenue between East 36th and East 37th Street. The properties total approximately 840,000 SF of office space, 37,000 SF of retail space, and a 46,000 SF parking garage. This loan represents a pari-passu portion of a $231.0 million first mortgage. As of March 2022, the properties had a combined occupancy of 81%, compared to 92% as of December 2020, 87% as of December 2018 and 90% at securitization. The loan is interest only throughout its entire term and Moody’s LTV and stressed DSCR are 120% and 0.81X, respectively, the same as at the last review.

The second largest loan is the Crossgates Mall Loan ($89.7 million – 14.3% of the pool), which represents a pari-passu portion of a $251.1 million mortgage loan. The loan is secured by a two-story, 1.3 million square foot (SF) super regional mall located in Albany, New York. The mall is anchored by Macy’s (non-collateral), J.C. Penney, Dick’s Sporting Goods, Burlington Coat Factory, Best Buy, and Regal Crossgates 18. A non-collateral anchor, Lord & Taylor, has closed its store at the property due to its recent filing for Chapter 11 bankruptcy reorganization. As of June 2020, the total mall and collateral occupancy was 96%. The in-line occupancy was 86% occupied compared to 90% in 2019. The property performance had been stable through year-end 2021 and the 2021 net operating income (NOI) was 2% higher than securitization levels. The mall represents a dominant super-regional mall with over 10 anchors and junior anchors and benefits from its location at the junction of Interstate 87 and Interstate 90. A new appraisal was completed in August 2020 which reduced the as-is value to $281.0 million compared to $470.0 million at securitization and resulted in an appraisal reduction of $6.9 million for the trust. The loan has been extended through May 2023. Moody’s has identified this loan as a potentially troubled loan.

The third largest loan is the Prince Building Loan ($75.0 million – 12.0% of the pool), which represents a pari-passu portion of a $200.0 million mortgage loan. The loan is secured by the fee interest in a 12-story retail and office building, totaling 355,000 SF and located in the SoHo neighborhood of Manhattan. The property contains 69,346 SF of retail space and 285,257 SF of office space. The property’s NOI has generally declined since securitization due to slightly lower rental revenues and significant increases in operating expenses. However, the property has benefited from recent leasing and was 92% leased as of March 2022, compared to 91% in December 2019. The property’s revenues in 2020 and 2021 were impacted by rent abatement periods of several new tenants as well as rent deferral agreements due to the pandemic. The loan is interest only throughout its entire term and matures in October 2022. Moody’s LTV and stressed DSCR are 116% and 0.81X, respectively, unchanged from the last review.

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Christopher Bergman
Asst Vice President – 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

Romina Padhi
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