KBRA Downgrades Two Ratings and Affirms All Other Ratings for RCMT 2016-3
22 Nov 2024 | New York
KBRA downgrades the ratings for two classes and affirms all other outstanding classes of RCMT 2016-3, a $28.2 million small balance commercial transaction. The actions follow a surveillance review of the transaction which has had an increase in realized losses since last review. To date, the transaction has realized $8.6 million in cumulative principal losses.
The realized losses include an aggregate $5.9 million incurred from the liquidation of the Meridian Professional Building ($3.2 million, 9.1% of the pool balance prior to the loss) as reflected in the October 2024 reporting. According to the remittance report the loss included approximately $2.5 million in additional liquidation expenses due in part to the reimbursement of related servicer advances. As a result, interest was diverted to cover the losses and shortfalls reached to Class E in the capital structure during the October remittance report. According to the special servicer, there are no outstanding advances but recovery of residual expenses from the resolution may further impact interest payments to the certificates. We expect the shortfalls to the E class to be temporary and paid back in the near term while the shortfalls to F class may take longer to be paid back.
The pool also has become more concentrated with four (37.4% of the pool balance) of the remaining 11 loans in the pool identified as underperforming loans, two of which (22.2%) are K-LOCs. This is offset by the transaction performance, which has experienced a continued increase in credit enhancement levels at the top of the capital structure due to deleveraging from amortization and loan payoffs. Since securitization, 50 loans have paid off (79.5% of the original pool balance).
The underperforming loans and K-LOCs are detailed below:
- The loan is collateralized by a 23,230-sf unanchored retail center in Staten Island, New York, approximately 20 miles southwest of Lower Manhattan.
- KBRA maintains its K-LOC designation and KPO of Underperform based on operating expenses outpacing revenue growth, resulting in a below breakeven DSCR. While revenue has generally remained stable, NCF declined from $413,000 in 2021 to $241,000 for the trailing 12 months ended June 2024 resulting in a below breakeven DSCR.
- The servicer-reported occupancies and DSCs are 100.0%/0.90x (FY 2023); 100.0%/1.06x (FY 2022); at issuance these were 100.0%/1.25x. KBRA estimates a $1.1 million loss given default on the asset based on a market value of $296,568 on this asset.
Applewood Grove Shopping Center (5th largest, 10.3%, K-LOC, Underperform)
- The loan is collateralized by is collateralized by a 66,946 sf, 1960-vintage unanchored retail complex located in Golden, Colorado, approximately nine miles west of the Denver CBD.
- KBRA maintains the loan’s K-LOC designation and KPO of underperform due to low occupancy and elevated rollover risk in the near-term. Occupancy was most recently reported at 68.0% as of April 2024, with leases representing 43.0% of the GLA scheduled to expire during the following 24 months.
- The servicer-reported occupancies and DSCs are: 75.0%/1.02x (FY 2023); 64.0%/1.51x (FY 2022); at issuance these were 78.0% /1.13x. At this time, KBRA does not estimate a loss on this asset.
HITDA Field Office (6th largest, 9.1%, Underperform)
- The loan is collateralized by a 43,942-sf office building located in Norcross, Georgia, approximately 22 miles northeast of Atlanta. The property is occupied by the City of Atlanta’s High Intensity Drug Trafficking Areas (HIDTA) organization.
- KBRA identifies the loan as a KPO of underperform due to the rollover risk of the tenant whose lease expires in May 2026, prior to the loan's August 2026 maturity date.
- The servicer-reported occupancies and DSCs are: 100.0%/2.67x (YTD June 2024), 100.0%/2.29x (FY 2023); 100. 0%/2.59x (FY 2022); at issuance these were 100.0% /1.51x.
Washington Plaza (8th largest, 6.1%, Underperform)
- The loan is collateralized by a 57,347-sf retail property in East Point, Georgia, approximately nine miles southwest of Atlanta.
- KBRA identifies the loan as a KPO of underperform due to near-term rollover risk of several of the tenants, including Piggly Wiggly (2nd largest tenant, 47.18% of GLA) whose lease expires December 2024.
- The servicer-reported occupancies and DSCs are: 95.0%/1.45x (YTD June 2024), 95.0%/1.47x (FY 2023); 79.0%/1. 67x (FY 2022); at issuance these were 91.0% /1.23x.
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 asset in the transaction, as well as the continuing magnitude and extent of interest shortfalls on the certificates.
Details concerning the classes with rating changes are as follows:
- Class F to B- (sf) from BB- (sf)
- Class G to CC (sf) from B- (sf)
Details concerning the remaining rated classes are as follows:
- Class D affirms the rating of AA- (sf)
- Class E affirms the rating of BBB (sf)
- Class IO B/C/D affirms the rating of AAA (sf)
To access ratings and relevant documents, click here.
Related Publications
Methodologies
- Structured Finance: Global Structured Finance Counterparty Methodology
- CMBS: North American CMBS Property Evaluation Methodology
- CMBS: North American CMBS Single Borrower & Large Loan Rating Methodology
- CMBS: Methodology for Rating Interest-Only Certificates in CMBS Transactions
- ESG Global Rating Methodology