Research: Rating Action: Moody’s affirms four and downgrades four classes of JPMBB 2013-C12

Approximately $645 million of structured securities affected

New York, March 17, 2023 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on four classes and downgraded the ratings on four classes in JPMBB Commercial Mortgage Securities Trust 2013-C12, Commercial Mortgage Pass-Through Certificates, Series 2013-C12, as follows:

Cl. A-5, Affirmed Aaa (sf); previously on Jul 30, 2020 Affirmed Aaa (sf)

Cl. A-S, Affirmed Aaa (sf); previously on Jul 30, 2020 Affirmed Aaa (sf)

Cl. B, Affirmed Aa3 (sf); previously on Jul 30, 2020 Affirmed Aa3 (sf)

Cl. C, Downgraded to Baa1 (sf); previously on Jul 30, 2020 Affirmed A3 (sf)

Cl. D, Downgraded to Ba3 (sf); previously on Apr 23, 2021 Downgraded to Ba1 (sf)

Cl. E, Downgraded to Caa1 (sf); previously on Apr 23, 2021 Downgraded to B2 (sf)

Cl. F, Downgraded to Caa3 (sf); previously on Apr 23, 2021 Downgraded to Caa2 (sf)

Cl. X-A*, Affirmed Aaa (sf); previously on Jul 30, 2020 Affirmed Aaa (sf)

* Reflects interest-only classes

RATINGS RATIONALE

The ratings on three P&I classes were affirmed because of their significant credit support and the transaction’s key metrics, including Moody’s loan-to-value (LTV) ratio and Moody’s stressed debt service coverage ratio (DSCR) and the transaction’s Herfindahl Index (Herf), are within acceptable ranges. Furthermore, defeasance makes up 19% of the outstanding pool balance.

The rating on four P&I classes were downgraded due to higher anticipated losses and increased interest shortfall risk from the exposure to specially serviced loans as well as potential refinance challenges for certain poorly performing loans with upcoming maturity dates. Two loans, representing 7.6% of the pool balance are in special servicing, including one regional mall loan (Southridge Mall – 6.2% of the pool balance) that has already experienced a 45% appraisal reduction based on the outstanding loan balance. Furthermore, two of the three largest loans (IDS Center – 11.2% of the pool and 408-416 Fulton Street – 5.1%) may be at heightened refinance risk due to lower occupancy, net operating income (NOI) and/or upcoming lease rollover. Moody’s has also identified five loans, representing 6.3% of the pool, as troubled loans due to declining NOI and/or occupancy in recent years. All the remaining loans mature by June 2023 and if certain loans are unable to pay off at their maturity date, the outstanding classes may face increased interest shortfall risk.

The rating on the IO class, Cl. X-A, was affirmed based on the credit quality of the referenced classes.

Moody’s rating action reflects a base expected loss of 9.6% of the current pooled balance, compared to 7.0% at Moody’s last review. Moody’s base expected loss plus realized losses is now 5.3% of the original pooled balance, compared to 4.8% 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 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 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 ACTION

The methodologies used in rating all classes except interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056  and “Large Loan and Single Asset/Single Borrower Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391055. The methodologies used in rating interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056, “Large Loan and Single Asset/Single Borrower Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391055 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. 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 https://ratings.moodys.com for a copy of these methodologies.

DEAL PERFORMANCE

As of the February 17, 2023 distribution date, the transaction’s aggregate certificate balance has decreased by 49% to $683.9 million from $1.3 billion at securitization. The certificates are collateralized by 54 mortgage loans ranging in size from less than 1% to 15.9% of the pool, with the top ten loans (excluding defeasance) constituting 57.7% of the pool.  Eighteen loans, constituting 19.0% of the pool, have defeased and are secured by US government securities.

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 12.

As of the February 2023 remittance report, loans representing 92.3% were current or within their grace period on their debt service payments, 6.2% were 90+ days delinquent and 1.5% were reported in REO.

Twenty loans, constituting 53.9% 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.

One loan has been liquidated from the pool, resulting in an aggregate realized loss of $4.7 million (for a loss severity of 33%). Two loans, constituting 7.6% of the pool, are currently in special servicing.

The largest specially serviced loan is the Southridge Mall loan ($42.3 million – 6.2% of the pool), which represents a pari-passu portion of a $105.9 million mortgage loan. The loan is secured by a 554,000 SF portion of a 1.2 million SF regional mall in Greendale, Wisconsin, a suburb of Milwaukee. At securitization, the mall was anchored by non-collateral anchors Boston Store, Sears, J.C. Penney, and collateral anchors, Macy’s and Kohl’s. Sears and Boston Store vacated the property in 2017 and 2018, respectively. Subsequently Kohl’s moved their store to a new retail development in late 2018. The former Sears space was partially backfilled by a Dick’s Sporting Goods/Golf Galaxy, Round1 Bowling and Amusement, and T.J. Maxx, all of which opened for business between 2018 and 2019. The loan was transferred to special servicing in July 2020 for imminent monetary payment default. The property’s performance has significantly declined in recent years and the mall’s full year 2022 NOI was 35% lower than in 2019 NOI primarily due to revenue declines. The 2022 NOI DSCR was 0.98X, compared to 1.53X in 2020 and 1.50X in 2019. As of June 2022, the total mall was 89% leased and the inline space was 87% leased (including 23% leased by temporary tenants). The loan has amortized 15.3% since securitization and is last paid through its October 2022 debt service payment. A receiver was appointed in December 2020. An updated appraised value in September 2022 was 60% lower than at securitization and 32% below the outstanding loan amount. As a result, an appraisal reduction of $19.2 million has been recognized on this loan as of the February 2023 remittance statement. Moody’s anticipates a significant loss on this loan.

The second specially serviced loan is the Pipeline Village East & West loan ($9.9 million – 1.5% of the pool), which is secured by a 133,236 SF retail property located in Hurst, Texas within the Dallas-Fort Worth-Arlington MSA. Performance has declined significantly since securitization. The loan was transferred to special servicing in August 2020 due to imminent default and the property is currently reported as REO. Moody’s anticipates a significant loss on this loan.

Moody’s has also assumed a high default probability for five poorly performing loan, constituting 6.3% of the pool, and has estimated an aggregate loss of $43.5 million (a 46% expected loss on average) from the specially serviced and troubled loans. The largest troubled loan is the Healthspring Operational Headquarters Loan ($19.0 million – 2.8% of the pooled balance), which is secured by a 170,515 SF medical office building located in Nashville, TN. The loan is in a cash trap period due to the single tenant, Healthspring reducing their space from 100% to 42% of NRA at their original lease expiration in May 2022. The renewed leases expire in June 2027, but the property is only 42% occupied and the loan has a maturity date in April 2023.

The remaining troubled loans include one limited-serviced hotel and three retail properties. These troubled loans show declining NOI and/or occupancy in recent years and all mature by June 2023.

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 2020 and 2021 operating results for 100% of the pool, and full or partial year 2022 operating results for 50% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 102%. 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 20% to the most recently available net operating income (NOI). Moody’s value reflects a weighted average capitalization rate of 9.5%.

Moody’s actual and stressed conduit DSCRs are 1.46X and 1.07X, respectively. 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 32.2% of the pool balance. The largest loan is the Legacy Place Loan ($108.8 million – 15.9% of the pool), which represents a pari-passu portion of a $174.1 million mortgage loan. The loan is secured by a 484,000 SF lifestyle retail center in Dedham, Massachusetts, a suburb of Boston. The property was developed in 2009 and consists of six buildings and parking for approximately 2,800 vehicles. At securitization, the property was anchored by a Whole Foods, Citizen’s Bank, L.L. Bean and Kings Bowling Alley. Whole Food and L.L. Bean extended their lease terms in January of 2020 for an additional 10 years and 7 years, respectively. Another major tenant, Citizen’s Bank, reduced their leased space by 44,567 SF (9% NRA) when they extended the lease in June 2020. The property was 78% leased as of March 2022, compared to 85% leased in December 2020 and 96% leased in December 2019. As of December 2022, reported NOI DSCR was 1.41X, compared to 1.48X in 2020, 1.71X in 2019 and 1.50X at securitization. The loan has amortized 13% since securitization and has an upcoming maturity in May 2023.  Moody’s LTV and stressed DSCR are 101% and 0.88X, respectively.

The second largest loan is the IDS Center Loan ($76.4 million – 11.2% of the pool), which represents a pari-passu portion of a $154.8 million mortgage loan. The loan is secured by a 1.4 million SF mixed-use property located in downtown Minneapolis, Minnesota. The collateral consists of a 57-story skyscraper office tower, an eight-story annex building, a 100,000 SF retail center, and an underground garage. As of September 2022, the property was 76% leased, compared to 73% in December 2020, 80% in December 2019, and 89% at securitization. The loan is on the servicer’s watch list due to low DSCR and occupancy. The September 2022 NOI was 17% lower than in 2013. The property also faces lease rollover risk with approximately 28% of the NRA expiring in the next two years. The loan has amortized 15% since securitization and has an upcoming maturity in May 2023. Moody’s LTV and stressed DSCR are 127% and 0.85X, respectively.

The third largest loan is the 408-416 Fulton Street Loan ($35.0 million – 5.1% of the pool), which is secured by a 55,287 SF retail property located in Brooklyn, NY. The property’s occupancy declined to 35% in June 2019 due to largest tenant, Apogee (87% of NRA), terminating their lease early. Shortly after, Zwanger Pesiri, a radiology chain, leased 12,000 SF (22% of NRA) of the former Apogee space. The loan is on the servicer’s watch list due to low occupancy, reported at 37% as of December 2022.  The loan is interest-only and has an upcoming maturity in May 2023. Moody’s LTV and stressed DSCR are 129% and 0.69X, respectively.

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 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 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.

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.

Dariusz Surmacz
Vice President – Senior 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