DBRS Morningstar Assigns Ratings to Irvine Core Office Trust 2013-IRV

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2013-IRV (the Certificates) issued by Irvine Core Office Trust 2013-IRV (the Issuer):

-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class XA at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class D at AA (sf)
-- Class E at A (low) (sf)
-- Class F at A (low) (sf)

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about August 20, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

The Certificates are supported by the payment streams from 10 uncrossed fixed-rate mortgage loans secured by the fee interest in 10 Class A commercial office properties in Southern California. Prior to the subject financing, all properties were unencumbered. The properties have an overall diverse tenant base and are considered above average in quality within their respective markets. The loans are nonrecourse and each is evidenced by a single promissory note that is secured by the respective fee interest in the related property. The 10-year loans have an aggregate outstanding principal balance of approximately $741.27 million, which reflects realized amortization based on a 30-year schedule. The loans had an original principal balance of $874.95 million and have a scheduled maturity date of May 2023.

The sponsor is Irvine Core Office LLC, an affiliate of the Irvine Company, LLC (Irvine). The borrowers are single-purpose, bankruptcy-remote entities directly owned by the sponsor and indirectly owned by Irvine. Irvine was established in 1864 and is a diversified, privately held real estate investment company and master planner known for its stewardship and master planning of the Irvine Ranch in Orange County, California. Irvine was responsible for master planning the City of Irvine, incorporated in 1971. Irvine has also developed a critical mass in Orange County with a combined portfolio of approximately 23.9 million square feet of office space. The collateral pool consists of 10 office properties (17 buildings combined) in Southern California. The properties were constructed between 1972 and 1991, then renovated between 2003 and 2012, with aggregate square footage of roughly 4.85 million.

DBRS Morningstar used the servicer’s June 30, 2019, reported cash flow figure of approximately $121.01 million and applied a 2.0% haircut, resulting in a net cash flow (NCF) figure of $118.59 million, which was capitalized using a cap rate of 7.49%. The servicer’s reported cash flow figure is significantly higher than the $81.95 million DBRS Morningstar NCF concluded at issuance in 2013, primarily attributable to the realization of contractual rent steps and increasing market rents. The resulting DBRS Morningstar Value was $1.58 billion, which represents a variance of -10.62% from the appraiser’s 2013 as-is value of $1.77 billion. The DBRS Morningstar Value implies an LTV of 46.8% compared with the LTV of 41.8% on the as-is appraised value at issuance (based on the amortized balance).

The cap rate DBRS Morningstar applied is at the middle of the DBRS Morningstar Cap Rate Ranges for office properties, reflecting the properties’ location, marketing positioning, and quality. In addition, the 7.49% cap rate DBRS Morningstar applied is above the implied cap rate of 4.71% based on the Issuer’s initial underwritten NCF and as-is appraised value of $1.771 billion.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 4.0% to account for cash flow volatility, property quality, and market fundamentals. Based on the significant increase in realized cash flow at the properties since issuance and the realized amortization, the ratings implied by the analytical tool results are higher than the DBRS Morningstar ratings assigned to Classes D, E, and F.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class XA is an 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Morningstar Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Morningstar Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

DBRS Morningstar notes that the risk sensitivity analysis associated with the above press release was amended on September 3, 2020, to reflect an update. The results of the update were generally in line with those previously disclosed and the amendments do not have any impact on the credit ratings or analytical considerations.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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