DBRS Morningstar Upgrades Ratings on Two Classes of COMM 2013-CCRE8 Mortgage Trust

DBRS Limited (DBRS Morningstar) upgraded its ratings on the following two classes of Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE8 issued by COMM 2013-CCRE8 Mortgage Trust:

-- Class C to AA (sf) from AA (low) (sf)
-- Class D to A (sf) from BBB (high) (sf)

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SBFL at AAA (sf)
-- Class A-SBFX at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class E at BB (high) (sf)
-- Class X-C at BB (low) (sf)
-- Class F at B (high) (sf)

All trends are Stable.

The rating upgrades are reflective of increased defeasance and additional principal repayment since DBRS Morningstar’s last review. Since March 2021, defeasance has increased to 30.9% of the pool balance from 22.3%. In addition, there has been collateral reduction of $130.8 million over the same period, primarily as a result of the payoff of two top 10 loans. As of the February 2022 remittance, 48 loans remained within the transaction with a current trust balance of $872.89 million, reflecting collateral reduction of 37.0% since issuance. Nineteen loans have defeased, including four loans within the top 10. One loan, representing 0.9% of the pool, is in special servicing and 10 loans, representing 41.6% of the pool, are on the servicer’s watchlist. Losses to date total $4.83 million and have been contained to the nonrated Class G certificate.

The only specially serviced loan, Georgetown MHC Portfolio (Prospectus ID#29; 0.9% of the pool), is secured by a 504-pad manufactured housing portfolio that comprises three properties within close proximity to each other in Georgetown, Kentucky, which is approximately 15 miles north of Lexington. The loan originally transferred to special servicing in March 2014 because of delinquency and the asset has been real estate owned since April 2016. According to the servicer, the subject had a history of failing to comply with local regulations surrounding sewage maintenance after a permit to operate an independent sewage system expired. This resulted in legal challenges and hindered attempts at selling the asset. An agreement between the sponsor and the city, which will allow the subject to connect to the city’s main sewage line, was executed in April 2021. The servicer has noted that the property was successfully listed for sale and a buyer has been selected with a purchase and sale agreement currently being negotiated. An updated appraisal completed in December 2021 valued the property at $10.2 million, significantly higher than the October 2019 appraisal value of $4.3 million. Despite the increase in appraised value, DBRS Morningstar expects a loss severity in excess of 40% at disposition for this loan.

The largest watchlisted loan, 375 Park Avenue (Prospectus ID#1; 23.9% of the pool), is secured by an 830,928-square-foot 38-storey Class A trophy office tower. The property is also known as the Seagram Building and is located in Midtown Manhattan. The property was more than 90% occupied with more than 59 tenants at issuance; however, the departure of the largest tenant, Wells Fargo (formerly 30.2% of the net rentable area), in February 2021 pushed occupancy lower and stressed cash flows. The loan was subsequently added to the servicer’s watchlist in August 2021 because of a decline in effective gross income and the debt service coverage ratio (DSCR). According to September 2021 reporting, the property was 68.8% occupied with a DSCR of 1.27 times (x), compared with 2.25x the prior year and 3.59x at issuance.

The borrower has noted that it has engaged Jones Lang LaSalle (JLL) to market the former Wells Fargo space to potential tenants. JLL reported that it is engaged in early-stage discussions with several prospective tenants and that its brokers have noted an uptick in activity related to leasing inquiries and tour activity at the property. Despite a reduction in operational and financial performance, DBRS Morningstar notes that performance at the property is likely to rebound in the near to moderate term given its desirable location, trophy status, recent leasing interest, and strong sponsorship.

At issuance, DBRS Morningstar shadow-rated one loan, 375 Park Avenue, investment grade, supported by the loan’s strong credit metrics, strong sponsorship strength, and historically stable collateral performance. With this review, DBRS Morningstar confirms that the characteristics of this loan remain consistent with the investment-grade shadow rating.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Class E and F as the quantitative results suggested a higher rating. The material deviation is warranted given the uncertain loan-level event risk resulting from a concentration of loans secured by property types that continue to face challenges in terms of occupancy rates and financial performance, including office, retail, and lodging properties.

Classes X-A, X-B, and X-C are interest-only (IO) certificates that reference 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 Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1– 375 Park Avenue (23.9% of the pool)

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), which can be found on 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

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.

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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