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Morgan Stanley Capital I Trust 2016-UBS12 -- Moody's affirms six and downgrades one class of MSC 2016-UBS12

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Rating Action: Moody's affirms six and downgrades one class of MSC 2016-UBS12Global Credit Research - 03 Feb 2021Approximately $595 million of structured securities affectedNew York, February 03, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on six classes and downgraded the rating on one class in Morgan Stanley Capital I Trust 2016-UBS12, Commercial Mortgage Pass-Through Certificates, Series 2016-UBS12 as follows:Cl. A-1, Affirmed Aaa (sf); previously on Nov 9, 2018 Affirmed Aaa (sf)Cl. A-2, Affirmed Aaa (sf); previously on Nov 9, 2018 Affirmed Aaa (sf)Cl. A-SB, Affirmed Aaa (sf); previously on Nov 9, 2018 Affirmed Aaa (sf)Cl. A-3, Affirmed Aaa (sf); previously on Nov 9, 2018 Affirmed Aaa (sf)Cl. A-4, Affirmed Aaa (sf); previously on Nov 9, 2018 Affirmed Aaa (sf)Cl. A-S, Downgraded to A1 (sf); previously on Nov 9, 2018 Affirmed Aa3 (sf)Cl. X-A*, Affirmed Aaa (sf); previously on Nov 9, 2018 Affirmed Aaa (sf)* Reflects interest-only classRATINGS RATIONALEThe ratings on five P&I classes were affirmed due to their credit support and 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 Cl. A-S class was downgraded due to the decline in pool performance and higher anticipated losses driven by the increased share of specially serviced loans. Specially serviced loans now make up 25% of the pool and are primarily secured by retail and hotel properties. The largest specially serviced loan, The Wolfchase Galleria Loan (8.2% of the pool), is secured by a regional mall that was already experiencing declining performance prior to 2020.The rating on the IO class was affirmed based on the credit quality of the referenced classes.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties.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 13.3% of the current pooled balance, compared to 5.5% at Moody's last review. Moody's base expected loss plus realized losses is now 12.7% of the original pooled balance, compared to 5.4% 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 RATINGSThe 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 ACTIONThe principal methodology used in rating all classes except the interest-only class was "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778. The methodologies used in rating the interest-only class were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.DEAL PERFORMANCEAs of the January 15, 2021 distribution date, the transaction's aggregate certificate balance has decreased by 4% to $792 million from $824 million at securitization. The certificates are collateralized by 42 mortgage loans ranging in size from less than 1% to 10% of the pool, with the top ten loans (excluding defeasance) constituting 63% 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 19, compared to 20 at Moody's last review.As of the January 2021 remittance report, loans representing 75% were current or within their grace period on their debt service payments, 8% were beyond their grace period but less than 30 days delinquent, 7% were between 30 -- 59 days delinquent, 1% were between 60 -- 89 days delinquent, 4% were 90+ days delinquent, and 5% were in foreclosure.Nine loans, constituting 26% 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.No loans have been liquidated from the pool. Nine loans, constituting 25% of the pool, are currently in special servicing. All of the specially serviced loans have transferred to special servicing since June 2020.The largest specially serviced loan is the Wolfchase Galleria Loan ($64.8 million -- 8.2% of the pool), which represents a pari-passu portion of a $152.8 million mortgage loan. The loan is secured by a 391,862 square foot (SF) component of a 1,267,857 SF enclosed regional mall located in Memphis, Tennessee. The Wolfchase Galleria is a prominent enclosed regional mall in its immediate submarket. The property's anchor tenants include Macy's, Dillard's, and J.C. Penney, which are all owned by their respective tenants and are not contributed as collateral for the loan. Sears, a former non-collateral anchor tenant, vacated this location in 2018 and remains vacant. Through year-end 2019, the property's performance was negatively impacted by store closures related to tenant bankruptcies as well as competition from other shopping centers in the area. Due to declines in revenue, the 2019 year-end property net operating income (NOI) was 30% lower than underwritten levels and the 2019 NOI DSCR was 1.29X. Property performance was further impacted as a result of the coronavirus pandemic and the loan transferred to special servicing in June 2020 due to imminent monetary default. As of September 2020, collateral and inline occupancy were 81% and 75%, respectively, the same as in June 2018. Collateral occupancy declined from 90% at securitization. As of the January 2021 remittance date, the loan was paid through its December 2020 payment date. The loan has amortized 7% since securitization and the special servicer recently approved a six month forbearance and loan modification converting the loan payments to interest only through its maturity date in November 2026.The second largest specially serviced loan is the Vintage Park Loan ($37.9 million -- 4.8% of the pool), which is secured by a 341,107 SF regional lifestyle center located approximately 25 miles northwest of Houston, Texas. The property was built in 2007 and is comprised of 317,657 SF of retail space as well as 23,450 SF of office space. As of December 2019, the property was 90% leased, unchanged since December 2017. Through year-end 2019, the property's performance has been below expectations at securitization due to lower rental revenue. The loan had an initial interest only period and started amortizing in February 2019. The combination of the declining performance and increased debt service payments caused the actual 2019 NOI DSCR to decline to 1.25X. Property performance has been further impacted by the coronavirus pandemic and the loan transferred to special servicing in June 2020 for imminent default at the borrower's request. As of the January 2021 remittance date, the loan was paid through its May 2020 payment date. The special servicer indicated forbearance relief terms have been approved with an estimated execution date in January 2021.The third largest specially serviced loan is the Shores Resort & Spa Loan ($30.8 million -- 3.9% of the pool), which is secured by a 212 key full-service hotel located in Daytona Beach, Florida situated along the Daytona beachfront. The hotel was developed in 1974 and renovated multiple times between 2012-2018 at an aggregate cost of $4.5 million ($37,226 / key). Property performance had already declined through year-end 2019 as a result of lower revenue per available room (RevPAR) and the December 2019 NOI DSCR was only 1.17X. The property benefits from its location and offers several transient demand drivers including beaches, sports teams and Daytona Beach International Speedway. However, the property has faced increased competition from new supply in the market after securitization. The property's operations were further impacted by the pandemic and the loan transferred to special servicing in June 2020 for imminent default at the borrower's request. As of the January 2021 remittance date, the loan was last paid through its November 2020 payment date. The special servicer indicated they are currently dual tracking payment relief discussions with potential foreclosure.The remaining six specially serviced loans are secured primarily by hotel and retail properties. Two specially serviced loans, the Arkansas Multifamily Portfolio and Halsted Plaza were included in the conduit statistics due to their historical performance and loan leverage. Moody's estimates an aggregate $54.9 million loss for seven of the specially serviced loans (a 30% expected loss on average).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 2019 operating results for 95% of the pool, and full or partial year 2020 operating results for 96% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 119%, compared to 117% 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 19% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.5%.Moody's actual and stressed conduit DSCRs are 1.72X and 0.89X, respectively, compared to 1.68X and 0.91X 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 conduit loans represent 27% of the pool balance. The largest loan is the 681 Fifth Avenue Loan ($80.0 million -- 10.1% of the pool), which represents a pari-passu portion of a $215.0 million senior mortgage. The loan is secured by the borrower's fee interest in a pre-war, Class A, mixed-use building located in New York, New York, at the southeast intersection of Fifth Avenue and East 54th Street. The seventeen-story property contains about 73% (60,063 SF) of office and 27% (22,510 SF) of retail space. It was 86% leased to one retail and nine office tenants as of September 2020, the same as in December 2018 and compared to 91% in December 2017. Tommy Hilfiger, which fully leases the street level retail component through May 2023 and accounts for approximately 77% of total revenue, had notified the Borrower that it intends to sublease 100% of its space at securitization. The tenant, unable to sublease the space, went dark in April 2019 but continues to pay rent. The loan is on the master servicer's watchlist but has remained current on its debt service payments. Moody's analysis factors in the significant lease rollover in 2023 and Moody's LTV and stressed DSCR are 145% and 0.59X, respectively, compared to 130% and 0.66X at the last review.The second largest loan is the 191 Peachtree Loan ($80.0 million -- 10.1% of the pool), which represents a pari-passu portion of a $175.5 million senior mortgage. The mortgage is secured by the partial leasehold interest in (i) 191 Peachtree Street, a 50-story, Class A, LEED-Silver certified office building housing a 14 story parking garage; (ii) 201 Peachtree Street, an adjacent two-story mixed-use building; and (iii) 221 Peachtree Street, an 11-story parking garage. The three buildings are located in Atlanta, Georgia. A portion of the land beneath the parking garage servicing the office building at 191 Peachtree Street is owned by an entity of the Ritz Carlton Atlanta, which serves as the ground lessor under a 99-year term ground lease and one 99-year extension with a final maturity date of February 20, 2186. The property was 88% leased as of November 2020, compared to 92% in December 2019 and 95% in December 2018. Although occupancy has slightly declined, the NOI has improved since securitization and the September 2020 NOI DSCR was 3.44X. The loan is interest only and Moody's LTV and stressed DSCR are 119% and 0.91X, respectively, compared to 127% and 0.85X at the last review.The third largest loan is the Orchard Loan ($56.4 million -- 7.1% of the pool), which represents a pari-passu portion of a $93.3 million senior mortgage. The mortgage is secured by a 280,644 SF, anchored retail center located in Lake Forest, California situated within Orange County. The property's improvements were built in 1972 and 2006, and consist of 23 buildings nearby two freeways. The property was 98% leased as of July 2020, compared to 99% in December 2018 and 98% in December 2017. Tenants include a grocer, Ralphs, (20% NRA; lease expiration in June 2027) followed by HomeGoods and PetSmart. While occupancy has been stable, the NOI has declined slightly since securitization due to higher operating expenses. In addition, Pier 1 Imports (formerly 4% of the NRA) closed all of its stores as a result of its bankruptcy filing. Moody's LTV and stressed DSCR are 130% and 0.77X, respectively, compared to 124% and 0.80X at the last review.REGULATORY DISCLOSURESFor 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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 ratings tab on the issuer/entity page for the respective issuer on www.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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.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 www.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 www.moodys.com.Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Seth Glanzman Associate Lead 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 Matthew Halpern 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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