KBRA Downgrades All Ratings for DBUBS 2011-LC3 Providence Place Mall

KBRA downgrades the ratings of the six classes of PM certificates from DBUBS 2011-LC3, a CMBS conduit/fusion transaction. The PM classes are rake certificates that derive 100% of their cash flow from the non-pooled components of the Providence Place Mall loan. No other classes issued by DBUBS 2011-LC3 are rated by KBRA. The downgrades are primarily the result of a decline in the collateral property’s performance since last review and securitization along with its April 2024 transfer to the special servicer for imminent maturity default. In determining the rating actions, KBRA also considered the potential for interest shortfalls from special servicing fees and other trust expenses as the special servicer works to resolve the loan, as well as potential principal losses and recoveries.

The Providence Place Mall loan is the largest exposure in DBUBS 2011-LC3, with an outstanding principal balance of $254.9 million ($251 per sf) as of the May 2024 distribution date. The loan previously transferred to special servicing in April 2021 as a refinance could not be secured by the borrower prior to its May 2021 maturity date. It was subsequently modified in August 2021 and the maturity date was extended to May 2022 with two additional one-year extension options subject to debt yield requirements and a permanent cash trap. Additionally, the loan was changed to full IO after the closing date of the modification. The final maturity was May 6, 2024, and according to the servicer, the sponsor, Brookfield Property Partners (BPY), is seeking an additional three-year extension. As of the May 2024 remittance, the loan is matured and non-performing. The excess cash flow reserve account had a balance of $6.1 million.

The transaction collateral is a single, non-recourse, first lien mortgage loan secured by the borrower’s leasehold interest in a 1.0 million sf portion of Providence Place Mall, a 1.2 million sf super-regional mall located in Providence, Rhode Island. The land underlying the property is leased from the Rhode Island Economic Development Corporation under a 99-year ground lease expiring in 2096, with four, 99-year extension options remaining. Based on the January 2024 rent roll, inclusive of additional leasing updates, the collateral was 94.5% leased, compared to 85.3% at KBRA’s last ratings change in June 2023 and 94.1% at securitization. The mall is currently anchored by Macy’s (non-collateral), Boscov’s (19.4% of collateral sf), which backfilled the former Nordstrom anchor space in October 2019, and Providence Place Cinemas 16 & IMAX (9.8%). According to the servicer, the borrower has indicated that the non-collateral Macy’s is on the list of locations planned for closure.

KBRA analyzed the cash flow for the property utilizing information from the trustee and servicer to determine KNCF. The analysis produced a KNCF of $21.6 million and a KBRA value of $182.3 million ($179 per sf), which also considers a distress liquidation value of the asset. The resulting in-trust KLTV is 139.8%, compared to 115.8% at KBRA’s last ratings change in June 2023 and 70.2% at securitization. The KBRA value implies that the trust may incur losses upon payoff or disposition of the asset. An appraisal dated May 2021 valued the property at $240.0 million ($236 per sf), which represents a 57.0% decrease from its $558.0 million ($569 per sf) value at securitization. KBRA maintains the loan’s K-LOC designation and KPO of Underperform based on its matured, non-performing status along with declining financial performance and underlying value of the asset.

Details for the classes with ratings changes are as follows:

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