Press Release|CMBS

KBRA Affirms All Ratings for WFRBS 2012-C10

3 Jan 2025 | New York

KBRA affirms all of its outstanding ratings for WFRBS 2012-C10, a $221.7 million CMBS conduit transaction. The affirmations follow a surveillance review of the transaction and are based on the performance and expected recoveries on the transaction's three remaining loans. The details of the loans are outlined below.

Republic Plaza (Largest, 47.2%, K-LOC, Underperform)

The loan is collateralized by a 1.3 million sf, Class-A office tower located in the Denver, Colorado CBD. The asset features 48,000 sf of retail space, two levels of below-grade parking and a 12-story parking garage with 1,275 stalls. Brookfield Office Properties Inc. is the loan sponsor. The property was built in 1982 and renovated in 2002.
KBRA maintains the loan’s K-LOC designation and KPO of Underperform based on it failing to pay off at its December 2022 scheduled maturity, its prior status with the special servicer, and low occupancy. The loan was transferred to the special servicer in March 2023 for maturity default but returned to the master servicer in September 2023 following the loan’s maturity extension effective July 2023. The terms of the extension agreement include an extension of the loan’s maturity date to March 2026, a principal curtailment payment of $6.0 million, and continuation of a cash trap whereby excess cash flow over $400,000 is to be applied as principal curtailment. Since our last surveillance review, the loan has paid down by $45.4 million (16.2% of the original whole balance of $280.0 million), of which a $104.7 million component is securitized in this transaction.
According to the June 2024 rent roll, inclusive of additional leasing updates, the property is 72.7% leased, up from 61.9% at last review and down from 94.5% at issuance. The increase in occupancy is primarily a result of a new lease executed in November 2023 with the Denver District Attorney, now the second largest tenant. The lease was for 146,133 sf and represents 13.3% of current total base rent. In addition, the current largest tenant, Ovintiv USA (Ovintiv, 24.5%) extended its lease for seven years through April 2033. However, it reduced its footprint by 71,595 sf (5.5% of collateral sf). Ovintiv has the right to give back an additional two floors between May 2024 and May 2026 with prior notice. As of the current review, KBRA has not received any additional information on the tenant exercising this right.
The servicer-reported occupancies and DSCs are: 71.8% / 1.31x (YTD June 2024), 67.3% / 1.16x (FY 2023); at closing, these were 94.5% / 1.55x. An appraisal dated December 2022 valued the asset at $298.1 million ($229 per sf), which is 44.3% below the $535.4 million ($411 per sf) value at issuance. KBRA's analysis resulted in an estimated loss of $2.0 million (0.8% estimated loss severity) on the whole loan balance of $234.5 million based on a value of $212.3 million ($163 per sf). The value was derived using a capitalization approach with a KNCF of $18.0 million and a capitalization rate of 8.50%.

Dayton Mall (2nd largest, 32.2%, K-LOC, Underperform)

The loan is collateralized by a 778,487 sf portion of a 1.4 million sf regional mall located in Dayton, Ohio, approximately 10 miles south of the city’s CBD. The mall was formerly anchored by non-collateral tenants Elder Beerman and Sears. Elder Beerman closed in October 2018 (the vacant space was later purchased by the borrower in November 2019) and Sears closed in November 2018 and the vacant box is currently owned by Seritage. Anchors JCPenney (23.0% of collateral sf, March 2026 lease expiration) and Macy's (non-collateral) remain open. The sponsor of the loan, Washington Prime Group, filed for chapter 11 bankruptcy protection in June 2019 and reclassified the mall as a non-core asset (it was previously classified as a Tier 1 asset) among its holdings in June 2021. The firm later emerged from bankruptcy proceedings in November 2021. Dayton Mall has a Green Street Tap Score of 67 and a Mall Grade of B- and has some competition within the subject’s primary trade area. Competing retail centers include The Greene Town Center (7 miles way, Grade B+), Mall at Fairfield Commons (12 miles away, Grade C+), Cincinnati Premium Outlets (15 miles away, Grade A-), Kenwood Towne Center (31 miles away, Grade A+), and Destination Outlets (33 miles away, Grade C).
KBRA maintains the loan's K-LOC designation and KPO of Underperform due to its maturity default in September 2022 and matured non-performing status. The loan was transferred to special servicing in July 2021 as the guarantor had filed for bankruptcy. In December 2021, the court appointed Spinoso Real Estate Group as the receiver, which has been successful in retaining existing tenants and increasing occupancy. Pursuant to the September 2024 rent roll, the collateral was 90.6% leased, compared to 90.5% at last review and 92.2% at closing. Notably, leases comprising 34.3% of base rents, inclusive of MTM leases, are scheduled to expire through FY 2025. December 2024 special servicer commentary indicated a receivership sale is in process and a broker has been retained. For the TTM period ended September 2024, sales for comparable in-line tenants occupying less than 10,000 sf were $324 per sf, compared to $322 per sf at last review and $315 per sf at closing.
An appraisal dated August 2024 valued the property at $36.5 million ($47 per sf), which represents a 72.3% decline compared to the issuance appraisal of $132.0 million ($170 per sf). The most recent servicer-reported occupancies and DSCs are: 90.0% / 0.62x (FY 2023), 82.0% / 0.90x (FY 2020), 93.0% / 0.99x (FY 2019); at securitization these were 92.0% / 1.88x. KBRA’s analysis resulted in an estimated loss of $51.1 million (71.5% estimated loss severity) on the $71.5 million loan balance based on a value of $27.4 million ($35 per sf). The value was derived using a capitalization approach with a KNCF of $3.6 million and a capitalization rate of 13.00%.

Rogue Valley Mall (3rd largest, 20.5%, K-LOC, Underperform)

The loan is collateralized by a 453,935 sf portion of a 640,294 sf regional mall located in Medford, Oregon, approximately 100 miles south of Eugene, Oregon and 25 miles north of the California border. The mall has four anchors, JCPenney, Macy’s, Macy’s Home Store, and Kohl’s, all of which remain open. Macy’s and Kohl’s own their stores and underlying land. The loan sponsor is Brixton Capital, which purchased the property from GGP in 2016 for $61.5 million ($135 per sf), which is lower than the appraised value at origination of $80.0 million ($176 per sf). Rogue Valley Mall has a Green Street Tap Score of 24 and a Mall Grade of C and has little competition within the subject’s primary trade area. The nearest retail centers include Pony Village mall (101 miles way, Grade C-), Valley River Center (120 miles away, Grade B), The Shoppes at Gateway (120 miles away, Grade B+), Mt Shasta Mall (124 miles away, Grade B), and Bayshore Mall (127 miles away, Grade C+).
KBRA maintains the loan’s K-LOC designation and KPO of Underperform due to its maturity default in October 2022 and matured performing status. The borrower was unable to pay off the loan at its October 2022 maturity and it subsequently transferred to the special servicer. The borrower agreed to cooperate in a joint receivership motion and the receiver sale is in process. JLL is marketing the asset. Lease rollover risk through YE 2025, inclusive of MTM leases, represents 34.1% of base rent; however, rollover is granular with the largest tenant expiring during this period representing 3.4% of base rent. For the TTM period ended August 2024, sales for comparable in-line tenants occupying less than 10,000 sf were $311 per sf, compared to $314 per sf in 2023 and $321 per sf at closing.
An appraisal dated July 2024 valued the property at $31.8 million ($70 per sf), which represents a 60.2% decline compared to the issuance appraisal of $80.0 million ($176 per sf). The servicer-reported occupancies and DSCs are: 94.0% / 1.33x (FY 2023), 92.0% / 1.39x (FY 2021); at closing these were 95.0% / 1.76x. KBRA’s analysis resulted in an estimated loss of $17.6 million (38.7% estimated loss severity) on the $45.5 million loan balance based on a value of $27.4 million ($35 per sf). The value was derived using a capitalization approach with a KNCF of $3.6 million and a capitalization rate of 13.00%.

Rating Sensitivities

Future rating actions will be dependent upon the ongoing assessment of the timing and likelihood of ultimate payment of principal and accrued interest on the rated certificates. The assessment will consider the expected and actual losses on the remaining assets in the transaction, as well as the continuing magnitude and extent of interest shortfalls on the certificates.

To access ratings and relevant documents, click here.

Related Publication

CMBS: WFRBS 2012-C10 Pre-Sale Report

KBRA Affirms All Ratings for WFRBS 2012-C10

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Methodologies