Troubled retail loans lead to interest shortfalls for 2012 Barclays, UBS CMBS deal

A trio of troubled loans on regional malls has led to interest shortfalls for a 2012-vintage commercial mortgage-backed securities deal completed by Barclays and UBS.

Loans on the Louis Joliet Mall in Joliet, Illinois; the Crystal Mall in Waterford, Connecticut; and the Southland Center Mall in Taylor, Michigan are all in special servicing and have contributed to $10.7 million of cumulative interest shortfalls on UBS-Barclay’s Commercial Mortgage Trust 2012-C2, according to Moody’s Investors Service.

The balance of the deal has declined by 73.5 percent to $322 million since securitization. The deal, which had an initial balance of roughly $1.2 billion, has just seven loans remaining – all of which are in special servicing and all of which have passed their initial scheduled maturity dates.

The agency has now downgraded five classes of the deal and it projects a base expected loss of 49.5 percent of the current pooled balance. “The rise in e-commerce and changing consumer behavior presents challenges to brick-and-mortar discretionary retailers,” the report stated.

Moody’s has already applied an aggregate realized loss of $42.4 million to the pool, with the report noting that four of the remaining loans are REO and have been deemed non-recoverable. These loans make up about 53 percent of the pool. Two other loans, which make up about 29 percent, have received appraisal reductions.

The largest specially serviced loan in the pool is an $85 million loan on a portion of the Louis Joliet Mall, which was transferred to special servicing in May 2020, while the second-largest loan remaining is an $81 million loan on a chunk of the Crystal Mall in Waterford, Connecticut. That loan was transferred to special servicing in July 2020, with the agency anticipating a significant loss.

Meanwhile, the Southland Center Mall loan, a $64.2 million mortgage secured by a portion of a super-regional mall in Taylor, Michigan, was transferred to special servicing in June 2022 by sponsor Brookfield Properties. This loan, however, is seeing potential discussions for resolutions between the sponsor and the special servicer.