DBRS Morningstar Confirms Ratings on All Classes of WFRBS Commercial Mortgage Trust 2013-C18

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C18 issued by WFRBS Commercial Mortgage Trust 2013-C18 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)

All trends are Stable, with the exception of Class D, Class E, and Class F, which are assigned ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) ratings. In general, the rating confirmations and Stable trends reflect the stable performance of the transaction since the last review, which was completed in November 2022. The transaction is now in its maturity year, and although the remaining loans are well positioned overall, there remain challenges for the loans in special servicing and select loans on the servicer’s watchlist that continue to support the CCC (sf) and C (sf) ratings for Classes D, E, and F.

The DBRS Morningstar North American CMBS Insight Model results implied a higher rating for the Class B certificate. However, given the uncertainty surrounding select loans as further described below, the significant interest shortfalls outstanding, and the pending resolution of a specially serviced loan deemed nonrecoverable by the servicer, DBRS Morningstar maintained the AA (low) (sf) rating with this review and will monitor the transaction for developments as the bulk of the loans reach scheduled maturity near the end of 2023.

At the time of the November 2022 review, there were four loans in special servicing and as of the January 2023 remittance date, two of those loans remain in special servicing, one has been returned to the master servicer, and one loan was liquidated from the pool. The Hotel Felix Chicago loan was liquidated at a loss of $21.6 million, lower than DBRS Morningstar’s analyzed loss amount of approximately $30.0 million at last review. DBRS Morningstar’s liquidation scenario considered a haircut to the December 2021 appraisal figure; however, the loan ultimately resolved with a sale price that was approximately $7.0 million over the appraised value, with the realized loss below the DBRS Morningstar estimate as a result.

According to the January 2023 remittance, of the original 67 loans, 51 loans remain in the pool, with an aggregate principal balance of $620.2 million, representing a collateral reduction of 40.3% since issuance as a result of scheduled loan amortization and loan repayments. In addition, there are 16 loans, representing 14.1% of the pool, that are fully defeased. The transaction features a concentration of loans backed by retail properties within the pool’s 15 largest nondefeased loans. There are six loans, representing 18.1% of the pool, on the servicer’s watchlist, the largest of which is the JFK Hilton (Prospectus ID#4; 9.6% of the current pool). This loan is secured by a 356-key, full-service hotel adjacent to John F. Kennedy International Airport in Jamaica, New York. The loan has been in special servicing twice, with the most recent transfer in August 2021 as the borrower was requesting a discounted payoff to effectuate a property sale. Ultimately, the sale did not close, and the loan was returned to the master servicer in November 2022 as a corrected mortgage loan and is reporting current with no outstanding advances.

As of the property’s trailing nine months (T-9) ended September 30, 2022, reporting, the hotel reported an occupancy, average daily rate, and revenue per available room figure of 87.0%, $178.95, and $155.61, respectively, an improvement from the figures reported as of the T-9 ended September 30, 2021, period of 73.7%, $126.53, and $93.27, respectively. While the property’s net cash flow (NCF) improved to $3.4 million as of the T-12 ended September 30, 2022, financials (up from the YE2021 figure of -$0.2 million), the property is still underperforming relative to issuance when the NCF was reported at $6.9 million. In addition, it is worth noting that a November 2020 appraisal obtained during the loan’s first stint in special servicing estimated the property’s as-is value at $52.1 million, approximately half of the issuance value of $52.1 million, with the property’s performance historically lagging issuance expectations since issuance.

The two remaining specially serviced loans are the Cedar Rapids Office Portfolio (Prospectus ID #9; 3.2% of the pool) and HIE Magnificent Mile (Prospectus ID #10; 3.4% of the pool) loans. Both of the collateral properties were reappraised in the second half of 2022, reflecting a weighted-average (WA) value decline from issuance of 68.1% and a WA loan-to-value ratio (LTV) of 179.8% based on the respective outstanding loan amounts. The Cedar Rapids Office Portfolio has been real estate owned (REO) since June 2020. The loan is secured by two cross-collateralized Class A office buildings in Cedar Rapids, Iowa. According to the October 2022 appraisal, the property was valued at $10.1 million, reflecting a decline of 72.0% below the issuance value of $36.2 million, which results in a current LTV of 197.6%. Given that the amount of outstanding advances currently totals over $5.4 million, which is more than half the appraised value of the asset, it is likely that this loan will be deemed nonrecoverable by the servicer.

HIE Magnificent Mile is secured by a limited-service hotel located within the River North neighborhood of Chicago. According to the servicer, the lender became the successful bidder during the property’s foreclosure sale in November 2022, and the property was REO as of December 2022. The property was reappraised in August 2022 at a value of $12.9 million, 64.5% below the issuance value of $36.3 million, reflecting a current LTV of 162.7%. Given the decline in value and current loan exposure, DBRS Morningstar anticipates these loans to incur a loss severity of nearly 100% upon liquidation.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to Garden State Plaza. DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors 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 (May 17, 2022).

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class B, as the quantitative results suggested a higher rating on this class. The material deviation is warranted given the uncertain loan-level event risks as outlined in this press release.

Class X-A is an interest-only (IO) certificate that references 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.

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. 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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