Fitch Ratings has downgraded five and affirmed one class of German American Capital Corp. commercial mortgage pass-through certificates series 2012-CCRE1 (COMM 2012-CCRE1).

The Rating Outlook on class C is Negative following the downgrade. The Outlook on class B remains Negative.

RATING ACTIONS

Entity / Debt

Rating

Prior

COMM 2012-CCRE1

B 12624BAG1

LT

Asf

Affirmed

Asf

C 12624BAH9

LT

BBBsf

Downgrade

Asf

D 12624BAL0

LT

CCCsf

Downgrade

Bsf

E 12624BAN6

LT

CCCsf

Downgrade

Bsf

F 12624BAQ9

LT

CCsf

Downgrade

CCCsf

G 12624BAS5

LT

Csf

Downgrade

CCsf

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VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Greater Certainty of Loss; High Loss Expectations and Pool Concentration: Despite significant paydown since the prior rating action, exposure to regional malls (two loans; 86.9% of pool) remains a rating concern. All four loans remaining in the pool are considered Fitch Loans of Concern (FLOCs), including three in special servicing (40.4%).

The downgrades reflect a greater certainty of loss for the remaining loans, with increased loss expectations for Crossgates Mall (59.6%), which faces refinance risks at the loan's May 2023 extended maturity date. In addition, loss expectations remain high for the specially serviced RiverTown Crossings Mall (27.2%), which did not pay off at its June 2021 maturity date. Refinance prospects remain uncertain.

Given the pool concentration, Fitch performed a liquidation analysis, which considered the likelihood of repayment and expected losses from the liquidation of the remaining loans. All remaining classes are reliant on proceeds from the regional malls for repayment. Fitch assumed in the analysis that the majority of class B would be repaid by the two non-mall loans, giving the class higher recoverability prospects. Classes C through H are fully reliant on proceeds from the regional malls for repayment, with Fitch's current loss expectations impacting the distressed rated classes D, E, F and G.

While credit enhancement is high, Fitch expects the ultimate workout and recovery timing for the regional mall loans to be prolonged. The Negative Outlooks for class B and C reflect Fitch's concerns for performance stabilization and refinance prospects of these loans.

Regional Mall FLOCs: The largest loan in the pool, Crossgates Mall (59.6%), is secured by 1.3 million sf of a 1.7 million-sf regional mall in Albany, NY. The loan, which is sponsored by Pyramid Management Group, transferred to special servicing in April 2020. The borrower received initial coronavirus relief and the loan maturity was extended one year until May 2023 with the deferred debt-service being due at the extended maturity date. The loan was returned to the master servicer in June 2021 as a corrected mortgage loan.

Macy's is the remaining non-collateral anchor after Lord and Taylor closed at the end of 2020. JCPenney is the largest collateral anchor (13.9% collateral NRA through May 2023). Other larger tenants include Regal Cinemas 18, Dick's and Burlington. Collateral occupancy excluding specialty long-term tenants was 85% at YE 2021 compared with 86% at 2020. Servicer-reported NOI DSCR for this amortizing loan was has recovered to pre-pandemic levels of 1.44x as of YE 2021 compared with 0.81x at YE 2020 and 1.45x at YE 2019. In-line tenant sales prior to the pandemic were $590 psf ($430 excluding Apple) for the TTM ended February 2020. Recent tenant sales remain outstanding from the servicer.

Fitch's loss expectation on this loan is approximately 44%, implying a 20% cap rate and 5% stress to the YE 2021 NOI.

The second-largest loan, RiverTown Crossings Mall (27.2%), is secured by 635,769 sf of a 1.3 million-sf regional mall in Grandville, MI. The loan, which is sponsored by Brookfield Property Retail Group, transferred to special servicing in October 2020 and matured in June 2021 without repayment. A cash management account is trapping excess cash, and the borrower and lender are working on either modifying the debt or a deed-in-lieu/foreclosure.

The mall is anchored by three non-collateral tenants: Macy's, JCPenney and Kohl's. Non-collateral Sears closed in January 2021 and non-collateral Younkers closed in 2018. The collateral anchors are Dick's, (14.4% collateral NRA through January 2025) and Celebration Cinemas, (13.6% through December 2024). Collateral occupancy was 88% as of March 2022 compared with 86% at YE 2020 and 93% as of March 2019. Servicer-reported NOI DSCR for this amortizing loan was 1.01x at YE 2021, down from 1.51x at YE 2020 and 1.82x at YE 2019. In-line tenant sales were $301 psf at YE 2020 during the pandemic. Recent tenant sales remain outstanding.

Fitch's loss expectation on this loan is approximately 56%; the loss considers a discount to the most recent servicer reported appraisal value. Fitch's loss implies a 32% cap rate on the YE 2019 NOI and is consistent with Fitch stressed values on similar defaulted mall properties.

Additional Specially Serviced Loans: The remaining two loans, which transferred to special servicing for maturity default, are Claremont Corporate Center (6.9%), secured by an office property in Summit, NJ and Philadelphia Square (6.3%), secured by a student housing property in Indiana, PA. Per servicer updates, Claremont Corporate Center is under contract to be sold, and proceeds will pay the loan in full. Philadelphia Square is expected to be sold via discounted pay-off (DPO) after the servicer receives the pending appraisal and negotiations with the borrower are complete.

Increased Credit Enhancement: Credit enhancement has increased since Fitch's prior rating action, primarily from the repayment of loans at maturity as expected. As of the August 2022 distribution date, the pool's aggregate principal balance has been reduced by 82.2% to $166.5 million from $932.8 million at issuance. No loans are defeased. Cumulative interest shortfalls of $607,146 are currently affecting the non-rated class H.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Downgrades of classes B and C would occur if performance of the regional mall FLOCs declines further. Downgrades of the distress classes would occur as losses are realized from loan dispositions.

Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the Russia-Ukraine war whereby growth is sharply lower amid higher inflation and interest rates; even if the adverse scenario should play out, Fitch expects virtually no impact on ratings performance, indicating very few rating or Outlook changes. However, for some transactions with concentrations in underperforming retail exposure, the ratings impact may be mild to modest, indicating some changes on sub-investment-grade notes.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upgrades are unlikely due to the regional mall concentration, but could occur if performance of the regional mall FLOCs improves significantly.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

Additional information is available on www.fitchratings.com

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