Rating Action: Moody's downgrades four CMBS classes of Palisades Center 2016-PLSD
Global Credit Research - 09 Jul 2020
Approximately $389 Million of structured securities affected
New York, July 09, 2020 -- Moody's Investors Service (Moody's) downgraded the ratings of four classes in Palisades Center Trust 2016-PLSD, Commercial Mortgage Pass-Through Certificates, Series 2016-PLSD as follows:
Cl. A, Downgraded to A1 (sf); previously on Apr 17, 2020 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Ba1 (sf); previously on Apr 17, 2020 A2 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to B1 (sf); previously on Apr 17, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to Caa1 (sf); previously on Apr 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
The ratings on Cl. A, Cl. B, Cl. C and Cl. D were downgraded due to an increase in Moody's LTV as a result of continued decline in performance since securitization, additional store closures, and further stress on the property ahead of the loan's April 2021 maturity date as a result of the temporary interior closure and re-opening uncertainty due to the coronavirus outbreak. The actions conclude the review for downgrade initiated on April 17, 2020.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of commercial real estate from the collapse in US economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. 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.
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 defeasance or an improvement in loan performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the loan or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING
The principal methodology used in these ratings was "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227875. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
As of the June 15, 2020 payment date, the transaction's aggregate certificate balance remains unchanged since securitization at approximately $389 million. The whole loan of $419 million has a split loan structure represented by the trust loan component of $389 million and a companion loan component of $30 million (not included in the trust) that is securitized in JPMDB 2016-C2 . The trust includes notes A, B, C and D. The $229 million senior trust A note and the $30 million companion loan component in JPMDB 2016-C2 are pari passu. The trust notes B, C and D are junior to the trust note A and the companion loan. Additionally there is $142 million of mezzanine debt held outside the trust. The five year fixed-rate mortgage loan matures in April 2021.
The Palisades Center is located approximately 3.5 miles northwest of the Tappan Zee Bridge and 18 miles northwest of New York City. The property is managed by the loan's sponsor, Pyramid Management Group, LLC, a privately held real estate management and development company headquartered in Syracuse, New York.
The subject's primary trade area includes sections from three densely populated and affluent counties of the New York MSA: Rockland County, Westchester County, and Bergen County. Moody's identifies Garden State Plaza and Shops at Nanuet as significant competitors. The property draws substantial Sunday traffic from the nearby residence of New Jersey's Bergen County due to the county's highly restrictive "Blue Laws". These Blue Laws restrict retail operations on Sunday in Bergen County. Furthermore, the property may face additional competition from the American Dream development, a 2.9 million SF retail and entertainment complex, located approximately 25 miles south of the property in East Rutherford, New Jersey. The American Dream had a soft opening in October 2019 prior to closing due to the coronavirus outbreak.
The Palisades Center contains several occupied anchors comprised of Macy's (201,000 SF), Home Depot (132,800 SF), Target (130,140 SF), BJ's Wholesale Club (118,076 SF), Dick's Sporting Goods (94,745 SF) and Burlington Coat Factory (54,609 SF). Anchor collateral for the loan does not include the Macy's space. Other larger collateral tenants include a 21-screen AMC Palisades Center Cinema, Barnes and Noble, Best Buy, Dave and Busters, DSW, Autobahn Indoor Speedway, and New York Sports Club.
The property's performance has continued to decline since securitization. In July 2017, JC Penney closed and vacated their three-level 157,000 SF anchor space, which is part of the loan collateral. The JC Penney space remains vacant. In addition, Lord & Taylor (120,000 SF) closed in January 2020 and Bed Bath and Beyond (45,000 SF with lease expiring in January 2022) closed in June 2020. As a result of New York State mandate the interior of the mall has remained closed since March 19, 2020, with certain tenants offering curbside pick-up in the exterior of the mall. As a result of the closure, many tenants have not remitted rent payments in recent months and the decline in tenant sales from temporarily closures at Palisades and other non-essential retail properties may lead to increased likelihood of additional store closures. We expect the store closures, weakened tenant credit profiles and re-opening uncertainty will pressure the mall's performance for the rest of the year and the first half of 2021 .
The loan was transferred in April 2020 to special servicing as a result of the closure of the center related to the coronavirus outbreak. As of the June distribution date the special servicer was in discussions with borrower and mezzanine lender regarding potential payment relief terms. The property's NCF has continually declined since securitization and was $36.9 million in 2019, down from $40.5 MM in 2018 and $44.9 MM in 2016. Moody's loan to value (LTV) for the first mortgage ratio is 122%, compared to 97% at last review and reflects a decrease in Moody's stabilized NCF. Moody's trust stressed debt service coverage ratio (DSCR) is 0.77X compared to 0.98X at the last review. The loan status is 60 days delinquent as of the June payment date and there is outstanding P&I advances totaling approximately $1.43 million. Furthermore, the loan matures in April 2021 and may face significant refinance risk as a result of the declining performance and the current retail environment.
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 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_1133569.
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.
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.
EunJee EJ Park VP - Senior Credit Officer 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
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