Research: Rating Action: Moody’s affirms one and downgrades three CMBS classes of Palisades Center 2016-PLSD


Approximately $389 million of structured securities affected

New York, July 06, 2022 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on one class and downgraded the ratings on three classes in Palisades Center Trust 2016-PLSD, Commercial Mortgage Pass-Through Certificates, Series 2016- PLSD as follows:

Cl. A, Downgraded to Baa2 (sf); previously on Mar 4, 2021 Downgraded to A3 (sf)

Cl. B, Downgraded to B2 (sf); previously on Mar 4, 2021 Downgraded to Ba3 (sf)

Cl. C, Downgraded to Caa2 (sf); previously on Mar 4, 2021 Downgraded to B3 (sf)

Cl. D, Affirmed Caa3 (sf); previously on Mar 4, 2021 Downgraded to Caa3 (sf)

RATINGS RATIONALE

The ratings on Cl. A, Cl. B, and Cl. C were downgraded due to the heightened refinance risk the loan faces ahead of its already extended maturity date of October 2022 as a result of its decline in performance in recent years and the uncertainty of the property’s ability to recover to its financial performance prior to the coronavirus pandemic. Although the property’s net cash flow (NCF) improved year over year in 2021, its cash flow remains well below its 2019 levels and the 2021 NCF was approximately 44% lower than in 2016. Based on the first quarter performance in 2022, the annualized 2022 NCF would be at similar levels with that of 2021. Furthermore, the loan has already received a maturity extension after the borrower was unable to pay off the loan at its initial maturity date in April 2021.

The rating on Cl. D was affirmed due to Moody’s loan-to-value (LTV) and the current performance of the loan underlying the transaction.

Today’s action has considered how the coronavirus pandemic has reshaped the US economic environment and the way its aftershocks will continue to reverberate and influence the performance of commercial real estate. We expect the public health situation to improve as vaccinations against COVID-19 increase and societies continue to adapt to new protocols. Still, the exit from the pandemic will likely be bumpy and unpredictable and economic prospects will vary.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications.

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. Additionally, significant changes in the 5-year rolling average of 10-year US Treasury rates will impact the magnitude of the interest rate adjustment and may lead to future rating actions.

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 the loan’s 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 ACTION

The principal methodology used in these ratings was “Large Loan and Single Asset/Single Borrower Commercial Mortgage-Backed Securitizations Methodology” published in May 2022 and available at https://ratings.moodys.com/api/rmc-documents/388873. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

DEAL PERFORMANCE

As of the June 15, 2022 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 component. Additionally, there is $142 million of mezzanine debt held outside the trust. The five-year fixed-rate mortgage loan originally had a maturity in April 2021. However, the loan was previously transferred to special servicing in 2020 and the maturity was eventually extended to October 2022. The loan returned to the master servicer in May 2021 and has since remained current on its debt service payments.

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 Palisades Center contains several anchors occupied comprised of Macy’s (201,000 square feet (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, and Autobahn Indoor Speedway.

The property’s occupancy rate has declined 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 of March 2022, the property was 74% occupied and the collateral was 76 % occupied.

The loan was transferred to special servicing in April 2020 as a result of the impact and temporary closure of the center related to the coronavirus outbreak. The most recent appraisal value from August 2020 valued the property 52% below the appraisal at securitization but slightly above the outstanding loan amount. After a loan modification was completed, which included a 6-month principal and interest forbearance and an 18-month maturity extension, the loan returned to the master servicer in May 2021 and as of the June 2022 remittance report the loan has remained current on debt service payments.

The property’s performance was already declining prior to 2020 but was further significantly impacted by the coronavirus pandemic. The property reported a $16.2 million NCF in 2020 and while the property’s NCF increased year over year to $25.0 million in 2021, the 2021 NCF was still 32% lower than in 2019 and approximately 44% below the 2016 NCF. The property’s NCF in 2019 was $36.9 million, down from $40.5 million in 2018 and $44.9 million in 2016. Moody’s LTV and trust stressed debt service coverage ratio (DSCR) for the first mortgage ratio is 140% and 0.58X, respectively. As of the June 2022 remittance report, the loan remained current on debt service payments, however, the loan has outstanding P&I advances totaling approximately $2.82 million to be repaid as a result of the prior loan modification.

REGULATORY DISCLOSURES

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 on https://ratings.moodys.com/rating-definitions.

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 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 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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.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 https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Kevin Li
Asst Vice President – Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA
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

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Leave a Comment