DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-BPR2 (the Certificates) issued by Morgan Stanley Capital I Trust 2024-BPR2 (the Trust).
Class A at AAA (sf)
Class X at BBB (sf)
Class B at AA (sf)
Class C at A (sf)
Class D at BBB (high) (sf)
Class E at BBB (sf)
Class HRR at BBB (low) (sf)
All trends are Stable.
The MSC 2024-BPR2 single-asset/single-borrower transaction is collateralized by the borrower's fee-simple and leasehold interests in a portfolio of three malls: Lynnhaven Mall in Virginia Beach, Virginia; Coronado Center in Albuquerque, New Mexico; and Governor's Square in Tallahassee, Florida. The three properties total 3,331,017 square feet (sf) but the collateral portion is 2,667,550 sf.
Lynnhaven Mall is located in Virginia Beach, the largest city in Virginia. The area benefits from a large military presence, second only to the Pentagon, with locations for each major branch of the U.S. military. The mall opened in 1981 and totals 1,209,770 sf, of which 1,027,437 sf is collateral as the Macy's 198,625 sf box is not owned by the sponsor. The mall is anchored by Macy's, Dillard's, and JCPenney and the junior anchors include an 18-screen AMC Theatres, Dave & Buster's, and Dick's Sporting Goods. The mall is currently 97.4% occupied with an inline occupancy rate of 96.1%. Inline sales for the trailing 12 months (T-12) ended January 31, 2024, were $702 per square foot (psf) ($510 psf excluding Apple). The most recent major renovation of the mall occurred in 2014 with the movement of the food court to the front of the AMC Theatres from the mezzanine level and the redevelopment of the former Lord & Taylor box.
Coronado Center is in Albuquerque, the largest city in New Mexico. The mall opened in 1964 as an open-air center but was enclosed in 1976. The mall totals 1,083,526 sf, of which 802,392 sf is collateral, as the Macy's 146,000 sf and JCPenney 135,134 sf boxes are shadow anchors that are not owned by the sponsor. The mall is anchored by Macy's and JCPenney and the junior anchor tenants include Furniture City, Round 1, Dick's Sporting Goods, and Barnes & Noble. It is important to note that in the other anchor space at the mall, there is a vacant Kohl's that closed in September 2023. The mall is currently 81.7% occupied with an inline occupancy rate of 95.6%. Inline sales for the T-12 ended January 31, 2024, were $626 psf, which is the strongest performance in the portfolio. The most recent major renovations of the mall were in 2014, when a full cosmetic refresh was completed, and in 2016, with the redevelopment of the former Sear's box.
Governor's Square is in Tallahassee, the state capital of Florida. It is also home to Florida State University, approximately four miles from the property, and one of the largest colleges in the state with more than 44,000 students enrolled (as of Fall 2022). The mall opened in 1979 and totals 1,037,721 sf, of which 837,721 sf is collateral as the 200,000 sf Dillard's box is not owned by the sponsor. The mall is anchored by Dillard's and JCPenney. Macy's was another anchor at the property until it closed the store at Governor's Square earlier this year and there are no longer any Macy's stores in the Tallahassee market. The mall is currently 48.1% occupied with an inline occupancy rate of 68.8%. Inline sales for the T-12 ended January 31, 2024, were $448 psf. The most recent major renovation of the mall was in 2014 when a cosmetic refresh was completed. There is potential for other major renovations at this mall since there are two vacant anchor spaces with upfront reserves for redevelopment.
The Morningstar DBRS NCF represents a negative variance of -22.8% to the YE 2023 NCF of $54.6 million. Morningstar DBRS anticipates there will likely be additional turnover at some of the properties over the course of the loan term because of upcoming tenant maturity and applied additional vacancy, in addition to occupancy cost markdowns, in the Morningstar DBRS NCF analysis. Based on the Morningstar DBRS NCF, 19.5% and 23.7% of Morningstar DBRS gross rent is scheduled to expire at Lynnhaven Mall and Governor's Square, respectively. Additionally, 19.4% of Morningstar DBRS gross rent is scheduled to expire in 2027 at Coronado Center. Morningstar DBRS also applied a weighted-average qualitative adjustment of -0.50% for cash flow volatility in its analysis.
Considering the properties' strong sponsorship, dominance in their respective locations, acceptable in-line sales, and generally consistent occupancy trends at Lynnhaven Mall and Coronado Center, Morningstar DBRS has a generally positive view of the collateral's credit characteristics. Although brick-and-mortar retailers are facing secular headwinds and the proliferation of e-commerce continues to gain traction, the collateral has displayed consistent improvement in performance, and sales at the properties continue to rise.
Morningstar DBRS' credit ratings on the Certificates address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and Interest Distribution Amounts for the rated classes.
Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Yield Maintenance Premium.
Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.
Class X is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.
All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799.
Other methodologies referenced in this transaction are listed at the end of this press release.
With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.
DBRS, Inc.
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Chicago, IL 60602 USA
Tel. +1 312 332-3429
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
MACY'S, INC. 
