Mortgage on U.S. retail centers secures $380.6 million CMBS

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Notable concerns for the DTP Commercial Mortgage Trust 2023-STE2 transaction include AMC tenant exposure within the top three properties in the portfolio.

Commercial mortgage pass-through certificates issued by DTP Commercial Mortgage Trust 2023-STE2 are collateralized by a first-lien mortgage on the borrower's fee simple interest in 10 retail centers.

The shopping centers totaling 3.4 million square feet are located across nine states and are primarily grocery-anchored or shadow-anchored by high-quality discount retailers and mass merchandisers, according to Moody's Investors Service. The closing date is Dec. 28, 2023.

The loan sponsor and guarantor is Dividend Trust Portfolio, a joint venture between SITE Centers Corp. and Frontier JV Investor, which itself is a joint venture between China Merchants and China Life.

The loan sellers are Wells Fargo Bank National Association, Goldman Sachs Mortgage Company, and Key Bank National Association. Wells Fargo is also the master servicer for the loan, with Rialto as special servicer.

The properties were either developed or redeveloped at various points between 1978 and 2015. The sponsor acquired the properties between 1993 and 2012, and then invested $29 million in them between 2018 and 2023. As of October 2023, the portfolio was 95.9% leased to 189 distinct tenants, Moody's said.

Moody's estimates the asset value as $403.6 million (adjusted $454.3 million). The capitalization rate is 9.33% (adjusted 8.29%), the loan-to-value (LTV) ratio is 94.3% (adjusted 83.8%), the debt service coverage ratio (DSCR) is 1.48%X (adjusted 1.07X), and the debt yield is 9.9%.

The interest-only loan will have a term of five years and will accrue interest at an assumed fixed rate of approximately 6.7%. It is expected to mature on Jan. 11, 2029, according to Moody's.

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Credit enhancement is provided by the subordinate tranches.

AMC Theatres is the portfolio's largest tenant, representing 10.4% of the portfolio's base rent. It is subject to the headwinds in the cinema industry, Moody's said.

Moody's lists the notable strengths of the transaction as strong anchor tenancy, granular tenant roster, experienced sponsorship, geographic diversity, and cross-collateralization. Notable concerns for the transaction include: AMC tenant exposure within the top three properties in the portfolio; interest-only mortgage loan profile; rollover risk; secondary/tertiary market exposure; and credit negative legal features.

Moody's has assigned provisional ratings to six classes of the securities; Aaa to class A; Aa3 to class B; A3 to class C; Baa3 to class D; Ba1 to class E; and Ba2 to class HRR. It didn't rate the class R notes.


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