DBRS Confirms Ratings on COMM 2013-CCRE11 Mortgage Trust

DBRS Limited (DBRS) has today confirmed the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE11 (the Certificates) issued by COMM-2013 CCRE11 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A 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 (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class G.

The rating confirmations reflect that the transaction’s current performance remains in line with expectations since issuance in October 2013. The collateral consists of 46 fixed-rate loans secured by 82 commercial properties. The pool is concentrated based on loan size, as the top ten loans represent approximately 64.0% of the current pool balance, with the largest loan, the Miracle Mile Shops (Prospectus ID#1), representing 11.5% of the current pool balance. According to YE2014 financials, the pool had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.76 times (x) and 10.72%, respectively. As of the September 2015 remittance, the pool has an aggregate balance of $1,259 million, representing a collateral reduction of approximately 0.8% since issuance as a result of scheduled loan amortization.

There are currently nine loans on the servicer’s watchlist, representing 17.7% of the current pool balance. All loans, excluding the largest loan currently on the watchlist, the One & Only Palmilla (highlighted below), have been flagged as a result of low DSCR’s; however, as of YE2014 financials, these loans report a WA DSCR and debt yield of 1.13x and 8.92%, respectively.

The One & Only Palmilla loan (Prospectus ID#3, 7.2% of the current pool balance) is secured by a 173-room luxury resort located in Mexico’s Baja Peninsula, situated in between San Jose del Cabo and Cabo San Lucas. The loan was added to the servicer’s watchlist in October 2014 after Hurricane Odile made landfall on the Baja Peninsula in September 2014, inflicting widespread damage to the region and the subject property. The cost of repairs at the subject alone was estimated to be in excess of $100 million. The servicer reports that the borrower’s insurance policy was comprehensive, providing full coverage for damages and repairs, as well as business interruption proceeds. To date, all claims have either been received or are currently being processed. In addition, the borrower has reportedly invested additional capital, returning the property to a better condition than before the hurricane damaged the property. According to the borrower’s website, the property reopened April 20, 2015, and is currently operational, featuring a number of new elements such as a new steakhouse, completely refurbished guest rooms and suits, new adult outdoor lounging areas with panoramic ocean views, as well as a new spa and fitness centre. Loan sponsorship is split equally between Kerzner International Resorts (Kerzner) and Istithmar Building FZE (Istithmar), which each have experience in international real estate holdings, including hotels. Kerzner has ownership interests in ten luxury hotels, primarily located in tropical environments, including eight properties operating under the One & Only brand. As of Q2 2014, the loan had a DSCR of 3.63x and a debt yield of 21.12%, respectively; more recent financials have not yet been received. Given the experience and well-capitalized sponsor, alongside the noted renovations and historical performance of the property, DBRS expects that the performance of the loan will recover to pre-hurricane levels.

The Orangefair Marketplace loan (Prospectus ID#9, 3.46% of the current pool) is secured by a 324,806-square foot anchored shopping centre located in Fullerton, California. The loan was added to the servicer’s watchlist in July 2015 after the YE2014 DSCR fell to 1.19x, below the DSCR trigger of 1.20x. While the DBRS underwritten DSCR was 1.19x, the issuer in comparison underwrote the loan with a DSCR of 1.25x at issuance. The DSCR dropped marginally through 2014 because of a loss in rental revenue and an increase in expenses – namely repairs and maintenance, general and administrative, and payroll and benefits expenses. According to the May 2015 rent roll, the property was 88.4% occupied with an average rental rate of $13.77 per square foot (psf) compared with a respective 96.0% and $12.80 psf in June 2014. The decrease in occupancy is a result of LA Fitness’ (6.9% of the net rentable area (NRA)) decision to vacate its space as of May 2015, ahead of its original July 2018 expiration date. The borrower has signed Chuze Fitness to a ten-year lease, which will commence as of August 2016, although DBRS was not provided with the new tenant’s rental rate. Through 2016, two tenants, Sketchers (4.3% of NRA through August 2016) and Factory 2-U (4.9% of NRA through April 2016) have lease expirations. Sketchers’ option to exercise a lease renewal began on September 1, 2015, and runs through March 2016. Factory 2-U has no remaining renewal options, and the borrower is currently in discussions with the tenant regarding a lease renewal.

At issuance, DBRS assigned investment-grade shadow ratings to three loans: the One & Only Palmilla, One Wilshire (Prospectus ID#6, 6.35% of the current pool) and 200-206 East 87th Street (Prospectus ID#11, 2.8% of the current pool). DBRS has today confirmed that the performance of these three loans, representing 16.3% of the current pool balance, remains consistent with investment-grade loan characteristics and has confirmed the shadow ratings.

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 September 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.

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

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com