DBRS Confirms Ratings of COMM 2013-CCRE10

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, 2013-CCRE10 (the Certificates), issued by COMM 2013-CCRE10 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

Trends for Classes A-1 through E are Stable. The trend on Class F has been changed to Negative. DBRS does not rate the first lost piece, Class G. The Class PEZ certificates are exchangeable for the Class A-M, B and C certificates (and vice versa).

The rating confirmations reflect the current performance of the transaction and the Negative trend on Class F is reflective of the specially serviced loan. The collateral consists of 59 fixed-rate loans secured by 87 commercial properties. As of the June 2015 remittance report, the pool has a balance of approximately $990 million, representing a collateral reduction of 3.0% since issuance. Overall, the loans in the pool have reported stable performance, as according to YE2014 reporting, the pool had a weighted-average debt service coverage ratio (DSCR) and weighted-average debt yield of 1.8 times (x) and 10.8%, respectively.

As of the June 2015 remittance report, there are six loans on the servicer’s watchlist, representing 7.0% of the pool balance. All six loans are on the watchlist for deferred maintenance items; however, performance has been stable as the six loans reported an average DSCR of 1.46x in 2014.

The one loan in special servicing, Strata Estates Suites (Prospectus ID#15, 2.1% of the pool) is secured by a 134-unit corporate housing portfolio, servicing the Bakken and Three Forks oil formation. One property is located in Williston, North Dakota and the other is located in Watford City, North Dakota; these properties were built in 2009 and 2011, respectively. The loan was transferred to special servicing in February 2014 due to payment delinquency and the property is now in foreclosure. The receiver, Riverstone Residential Group, has local expertise in the region as it manages many multifamily properties throughout Williston, Watford City and Dickinson. Prior to the arrival of Riverstone, the subject had no leases in place. As of the March 2015 rent roll, the portfolio was 64.2% occupied and reported a 2014 DSCR of 0.52x. Riverstone was able to achieve an average rental rate of approximately $2,900 per unit, compared to $4,615 per unit at issuance. The most recent Broker Opinion of Value in April 2014 estimated the value of the portfolio in the $24.4 million ($182,000/unit) to $26.0 million ($194,000/unit) range, compared to $41.0 ($305,970/unit) at issuance.

According to Real Capital Analytics, there have been a few recent transactions since late 2014 that show an average transaction price of $173,000 to $184,000 per unit; however, these properties were 90% to 100% occupied at the time of sale. DBRS simulated a liquidated scenario by assuming a 30% decline to the April 2014 BOV to account for the further occupancy decline and drop in oil prices since April 2014. DBRS assumed the total loan exposure to include the unpaid principal balance, current outstanding advances and an estimate of future expenses and advances. Based on those assumptions, DBRS estimates the loss could be in excess of $12.0 million and will monitor the loan for further value reporting and the impact that may have on the DBRS loss assumptions. As a result of the expected loss and the uncertainty of the value of the property due to a lack of a recent appraisal, DBRS has assigned a Negative trend to Class F.

The largest loan on the watchlist, Worcester Multifamily Portfolio (Prospectus ID#14, 2.4% of the pool) is secured by two Class A multifamily properties located in Worcester, Massachusetts. The Portland Street Lofts was originally a warehouse; however, the sponsor converted the building into a multifamily property in 2013. This loan is on the watchlist for reporting a 2014 DSCR of 1.06x. The occupancy rate at Portland Street lofts has decreased from 90.0% at issuance to 86.3% as of April 2015. The occupancy rate at Bancroft Commons was 93.3% at issuance, and 89.0% as of April 2015. There were significant renovations at both properties as the sponsor spent $9.3 million for Bancroft Commons and $8.6 million for Portland Street Lofts. According to Reis, the average submarket rental rate in Worcester is $1,182 per unit, compared to the average rental rate of Bancroft Commons of $777 per unit. As the renovations are approaching completion, the borrower should be able to ask for rents closer to market when leases begin to roll. An additional 16 units between both properties have been added since issuance, which will provide additional rental income. Based on the collateral quality and recent capital improvements, DBRS expects to see an improvement in the performance of the loan going forward.

At issuance, DBRS shadow-rated two loans as investment grade, representing 15.0% of the current pool balance. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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 and loans on the servicer’s watchlist. The June 2015 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 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 to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

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