DBRS Morningstar Confirms All Ratings on LCCM 2013-GCP Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GCP issued by LCCM 2013-GCP Mortgage Trust:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since last review. The underlying loan is secured by a Class A office property located in the Grand Central submarket of Midtown Manhattan. The 39-story property totals approximately 1.0 million square feet (sf), including ground-floor retail space totaling 37,276 sf. According to the March 2022 remittance report, the current trust balance stands at $266.8 million, reflecting nominal collateral reduction of 3.0% from the issuance balance of $275.0 million. The loan was structured with an initial 15-year term and included a seven-year interest-only (IO) period. The loan began to amortize in March 2020 and is scheduled to mature in February 2028. The loan sponsor, Charles S. Cohen, is the president and chief executive officer of Cohen Brothers Realty Corporation, a private real estate development and management firm that reportedly has real estate holdings of more than 12 million sf, including multiple Class A office towers in Midtown Manhattan.

The property’s largest tenant, Interpublic Group of Companies, Inc. (IPG), represents 44.8% of the net rentable area (NRA) and is currently on a long term lease that expires in May 2034. IPG has historically shown commitment to the property, evidenced by a self-funded $40 million renovation of its space at issuance. In general, tenant rollover risk is moderate throughout the remainder of the loan term. Leases representing 15.0% of the total NRA are set to roll within the next 12 months, including tenants Cooper Square Realty Inc. (5.3% of NRA; lease expiration in September 2022) and Third Avenue Holdings (5.2% of NRA; lease expiration in August 2022). According to the January 2022 rent roll, two new leases have been signed at the property, with BDO USA leasing 26,000 sf and taking occupancy in September 2022 and Albert’s Bar leasing just under 10,000 sf and taking occupancy in April 2022.
As of January 2022, the property was 88.0% occupied, a decline of approximately 5.4% from year-end (YE) 2020. The departure of two restaurant tenants, Zengo (formerly 17,000 sf), and Public House (formerly 7,355 sf), were the primary drivers related to the occupancy decline. Given recent leasing activity at the property, occupancy is expected to increase to 91.3% in the near term. The June 2021 financials indicate a debt service coverage ratio (DSCR) of 1.46 times (x) and an annualized net cash flow of $26.2 million, compared with 1.63x and $28.3 million, respectively, as of year-end 2020. In addition, the January 2022 rent roll indicates new leases are being signed at premiums of approximately $10 per square foot (psf) when compared with existing in-place leases, suggesting cash flow growth could be realized in the near to moderate term.

According to Reis market data, vacancy rates within the Grand Central Submarket are expected to remain elevated at 10.5% in 2022 and 2023, while average asking rents are expected to remain static at approximately $75 psf. Despite recent tenant turnover, DBRS Morningstar expects performance to remain stable given the granularity of the rent roll, high-quality tenancy, desirable location of the asset within the Grand Central submarket of Midtown Manhattan, and strong historical performance. Moreover, recent leasing activity, likely bolstered by the ongoing (and gradual) return-to-office trends within New York and throughout the country, suggests the subject transaction continues to exhibit a favorable risk profile; especially when combined with the healthy LTV of 73.0% on the issuance loan balance and the DBRS Morningstar value derived in 2020 of $445.1 million.

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.

Classes XA and XB are 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 this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan 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.

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.

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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