DBRS Morningstar Confirms Ratings and Changes Trends on All Classes of COMM 2013-300P Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of COMM 2013-300P Mortgage Trust, Commercial Mortgage Pass-Through Certificates issued by COMM 2013-300P Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A1P at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)

In addition, DBRS Morningstar changed the trends on all classes to Negative from Stable.

The Negative trends reflect DBRS Morningstar’s concerns surrounding increased risks associated with declining property cash flow from issuance in addition to concerns with the largest tenant, Colgate Palmolive, which is terminating over 10.0% of its space later this year, as further outlined below. The rating confirmations reflect the asset’s location in Midtown Manhattan as well as the strong sponsorship, which remains committed to the property.

The transaction is secured by the borrower’s fee-simple interest in 300 Park Avenue, colloquially known as the Colgate Palmolive Building, a Class A, LEED Silver-certified office tower on the west side of Park Avenue between 49th Street and 50th Street. The property was constructed in 1954 and, in addition to the office tower, the collateral consists of ground floor retail and storage space components. The property is in the Grand Central submarket and is more than double the average size of the submarket’s other office properties. The loan is sponsored by Prime Plus Investments, LLC, which is indirectly owned by Tishman Speyer Crown Equities 2007 LLC (Tishman Speyer); the National Pension Service acting for the National Pension Fund of the Republic of Korea; the Government of Singapore Investment Corporation (Realty) Pte Ltd.; and Andra AP-fonden, the Second Swedish National Pension Fund (AP2) of the Kingdom of Sweden.

At closing in 2013, the $485 million subject transaction was used to refinance and pay off existing debt of $135.2 million, pay an upstream distribution of $334.3 million to the sponsors, fund $13.1 million in closing costs, and fund a tax reserve of $2.5 million. The loan is interest only (IO) throughout its 10-year term with scheduled maturity in August 2023. The borrower has informed the servicer of its intention to refinance the property given the upcoming maturity.

According to the September 2022 rent roll, which is the most recently available reporting, the property was 81.5% occupied, a marginal increase from 78.3% at year-end (YE) 2021. The largest tenant is Colgate-Palmolive Company (Colgate) (52.6% of net rentable area (NRA)) with a lease expiration in June 2033. The lease contains one five-year renewal option remaining, and Colgate has used the property as its global headquarters since it was built. Colgate previously notified the borrower in May 2020 it planned to terminate the lease on 97,343 sf (12.5% of NRA) of its space but will continue paying $140.00 per square foot (psf) gross on the relinquished space through June 2023. Colgate will pay a reduced rate of $93.00 psf gross for the remaining space through lease maturity, down from an average of $106 psf. In anticipation of Colgate’s downsizing, there have been several new leases signed at the property, including JLL Partners, LLC, representing approximately 20.0% of NRA. The tenant took occupancy of a portion of this space in October 2022 with future lease commencement dates beginning in July 2023. The property reported an average rental rate of $82.18 psf gross, in line with the current submarket average rental rate for Class A office buildings of $81.52 psf gross, according to Reis. Additionally, the Grand Central submarket reported a Q4 2022 vacancy rate of 12.5%, lower than the property’s vacancy rate of 18.5%.

With this review, DBRS Morningstar completed an updated loan sizing analysis given the continuing decline in net cash flow (NCF) since issuance. As of September 2022, annualized NCF was $33.1 million, up from $26.4 million at YE2021; however, the figure remains below the DBRS Morningstar NCF of $42.1 million derived in 2020. The decrease in NCF is largely a result of tenants vacating at lease expiration. DBRS Morningstar anticipates short-term cash flow declines are likely given the borrower is expected to offer free rent periods associated with future leasing activity similar to the strategy employed with the recent JLL Partners lease. DBRS Morningstar is not aware of any additional pending lease activity at this time.

The DBRS Morningstar ratings assigned to all classes are higher than the results implied by the LTV sizing benchmarks. These variances are warranted given the value assumed in the analysis was based on a stressed approach that supported the Negative trends assigned across the stack, as outlined above. DBRS Morningstar also considered mitigating factors in the increasing occupancy rate, strong sponsorship, and location – these factors also support the variances from the LTV sizing benchmarks.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Class X-A 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 notes that this press release was amended on February 17, 2023, to update the material deviation disclosure.

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

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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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