DBRS Confirms Ratings of COMM 2013-CCRE8

DBRS has today confirmed the ratings of Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE8 (the Certificates), as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-SBFL at AAA (sf)
-- Class A-SBFX at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

DBRS does not rate the first loss piece, Class G. All trends are Stable. The Class A-SBFX certificates are exchangeable with the Class A-SBFL certificates (and vice versa).

The rating confirmations reflect the overall stability of the pool’s performance since issuance in June 2013. The collateral consists of 59 fixed-rate loans secured by 94 commercial properties. As of the May 2014 Remittance Report, the transaction has a balance of $1.37 billion, representative of collateral reduction of 0.74% since issuance. The transaction benefits from loans secured by properties located within urban markets representing 38.7% of the current pool balance, and loans secured by properties located within tertiary and rural markets representing only 16.9% of the current pool balance. The pool is concentrated in multiple respects, however, as the largest ten loans represent 57.7% of the transaction and 60.0% of the pool is secured by properties in New York, California and Florida.

As of the May 2014 reporting period, eight of the ten largest loans are reporting YE2013 financials, which is considered strong for the first year of a transaction. These eight loans reported a stable weighted-average debt service coverage ratio (DSCR) of 1.41 times (x). There is one loan in special servicing and two loans on the servicer’s watchlist, representing 0.77% and 1.20% of the current pool balance, respectively. According to the master servicer, the loans on the servicer’s watchlist will be removed in the next month as the performance of both loans has improved. The specially serviced loan is highlighted below.

The Georgetown MHC Portfolio loan is secured by three adjacent manufactured housing communities (MHCs) in Georgetown, Kentucky, located ten miles north of Lexington. The loan transferred to special servicing due to payment default, with the March 2014 and subsequent payments currently outstanding. According to the servicer, the property performance suffers from late-paying tenants and a slight decrease in the occupancy rate to 94% as of May 2014. Additionally, the effects of the harsh winter, including the freezing of several tenants’ pipes, resulted in several items of deferred maintenance. The servicer is pursuing foreclosure and CF Lane was installed as the receiver in late May. Based in Atlanta, CF Lane specializes in operating multifamily properties, including MHCs. Its portfolio contains 3,000 MHC pads in eastern Kentucky. The property was reappraised in May 2014 at $12.9 million ($25,700/pad), down from $16.2 million at issuance ($32,270/pad). While this represents a value decrease from issuance, the current appraised value remains greater than the outstanding $10.5 million ($21,000/pad) loan balance.

At issuance, DBRS shadow-rated two loans, representing 19.2% 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. One of these shadow-rated loans, 375 Park Avenue, is highlighted below.

The 375 Park Avenue loan is the largest loan in the transaction (15.2% of the current pool balance) and is secured by a 38-story, Class A, trophy office tower in Midtown Manhattan. The subject is designated as a New York City landmark and has an open plaza with reflecting pools, landscaping and public art. The tower interior includes the original lobby with travertine floors and walls, a mosaic tile ceiling and two bronze clad pillars, as well as the Four Seasons Restaurant on the first floor. Individual tenant spaces include Class A finishes such as glass-paneled offices and conference rooms and modern kitchens and reception areas. Total financing on the property totals $1.0 billion, including two pari passu A-notes, a B-note and mezzanine debt. The property is currently 90% occupied by 57 tenants. The largest tenant is Wells Fargo Bank N.A. (Wells), which occupies 29% of the net rentable area through February 2021. Wells has the option to terminate its lease in November 2015 with 16 months’ notice; however, DBRS views this is as unlikely, given that their current rental rate of $100 psf is well below the current market rental rate of $130 psf. The property as a whole reports a weighted-average rental rate between $15 psf and $30 psf below current prevailing market rates, estimated between $130 psf to $145 psf. This presence of below-market rents provides potential rental revenue gains for the property in future years. As of YE2013 reporting, the loan reported a stable DSCR of 1.64x.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The June 2014 monthly 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.

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

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