DBRS Confirms Ratings of MSBAM 2013-C7

DBRS has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C7 (the Certificates) issued by Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (sf)
-- Class PST at A (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class H. The Class PST certificates are exchangeable for the Class A-S, B and C certificates (and vice versa).

The collateral consists of 64 fixed-rate loans secured by 123 commercial properties. As of the January 2014 remittance report, the pool has a balance of approximately $1.38 billion, representing a collateral reduction of approximately 1.17% since issuance in January 2013. DBRS did not receive updated financial reporting for several of the larger loans in the transaction from the master servicer; however, based on the available updated financial reporting, the pool has exhibited stable performance since issuance. The transaction benefits from loans structured with significant amortization, as 16.8% of the pool amortizes down by maturity.

At issuance, DBRS shadow-rated two loans, representing 5.3% of the current pool balance, as investment grade. DBRS has today confirmed that the performance of the loans remains consistent with investment-grade loan characteristics.

As of the January 2014 remittance report, there are no delinquent or specially serviced loans and there are three loans, representing 3.7% of the current pool balance, on the servicer’s watchlist. Two of these loans are highlighted below:

Concorde Green Retail (Prospectus ID#15) is secured by a grocery-anchored retail center in Glendale Heights, Illinois. The loan was added to the servicer’s watchlist for a low DSCR, which was reported to be 0.56 times (x) by the primary servicer. According to the servicer, the decline in cash flow is due to increased operating expenses, including real estate taxes, insurance and marketing expenses. The center is anchored by Valli Produce (Valli), which is a sponsor-affiliated grocery store that maintains two other stores in the northwest Chicago suburbs. Valli expanded its space by approximately 32,000 sf in the second half of 2013, which should help to stabilize cash flow. The sponsor purchased the subject property in 2007 and between the purchase price and capital improvements has a total cost basis of approximately $28.9 million. It has had great success in improving the occupancy rate from 50% at acquisition in 2007 to 96.9%, as of the March 2013 rent roll.

Brentwood on Wilshire (Prospectus ID#42) is secured by a Class B office property in western Los Angeles. The loan was added to the servicer’s watchlist as the loan is being monitored for delinquency. According to the servicer, the cash flow decline is a result of vacating tenants; however, according to CoStar there is only one vacancy totaling 5,000 sf (17.2% of the NRA). The largest tenant at issuance was CML Media and Entertainment Group (39.2% of the NRA), which had a lease termination option at YE2013. DBRS has asked the servicer to provide a leasing update on the tenant, as its departure from the subject would present increased strain on the property’s cash flow.

DBRS continues to monitor the Le Meridien Parker Palm Springs loan (Prospectus ID#10), which is secured by a full-service luxury hotel in Palm Springs, California. At issuance, DBRS identified this loan to have a risk of potential technical default after the franchisor, Starwood Hotels (Starwood), filed a lawsuit against affiliates of the borrower. Starwood alleged that the borrower fraudulently manipulated bookings at the subject and at the Le Meridien Parker New York hotel to obtain higher reimbursements from the Starwood Preferred Guest loyalty program, to a total of $1 million over four years. DBRS is currently in communication with the master servicer awaiting an update on the lawsuit. The subject is still listed on Starwood’s website, with the current franchise agreement expiring at YE2014, at which point the borrower will have the option to exercise a one-time ten-year renewal with Starwood or to operate the subject as an independently flagged hotel. At the time of the DBRS site inspection in December 2012, DBRS noted that the subject already markets itself as the Parker Palm Springs and for all intents and purposes operates as an independently managed hotel.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool. The January 2014 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

The applicable methodology is CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.