DBRS Confirms Ratings on GS Mortgage Securities Trust 2013-GCJ16

DBRS Limited (DBRS) has today confirmed the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GCJ16 (the Certificates), to be issued by GS Mortgage Securities Trust 2013-GCJ16 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-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

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

The rating confirmations reflect the current performance of the transaction. The collateral consists of 77 fixed-rate loans secured by 134 commercial properties. According to YE2014 financials, the pool had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.56 times (x) and 10.5%, respectively, compared with the DBRS UW figures of 1.40x and 9.3%, respectively. As of October 2015 remittance, the pool has an aggregate balance of $1,070 million, representing a collateral reduction of approximately 1.5% since issuance due to scheduled loan amortization. DBRS has highlighted one loan not on the servicer’s watchlist below, as it has recently experienced a decline in performance.

The University Tower loan (Prospectus ID#10, 2.5% of the current pool balance) is secured by a Class A office building located in Durham, North Carolina, approximately five miles south of the Duke University campus. The 17-story structure was originally constructed in 1986 and totals 189,969 sf. As of Q2 2015, the loan reported an annualized DSCR of 1.13x, compared to the DBRS UW figure of 1.31x. Performance declined as a result of a 15.6% increase in total operating expenses and a 10.0% decline in EGI. The increase in expenses was primarily associated with a rise in R&M fees, as well as leasing and marketing efforts due to a decline in occupancy. According to the June 2015 rent roll, the property was 89.5% occupied, a decline from 97.3% in September 2014. According to CoStar, the subject had a consistent availability rate of 11% with the South Durham submarket, but achieved a higher average rental rate of $26.51 psf gross compared to $19.58 psf gross, as of Q3 2015. Duke University Health System (Duke (51.1% NRA)) currently occupies 34,034 sf (19.6% NRA) on a direct lease through February 2018 and another 58,299 sf (31.5% NRA) on a sublease through February 2020. As of December 2014, Duke elected to downsize, vacating an 11,725 sf (6.4% NRA) unit, which was formally sublet from Blue Cross Blue Shield. According to CoStar, the space is currently vacant, but is actively being marketed at a gross rental rate of $26.50 psf, which is above the submarket average rental rate. Wells Fargo Advisors (Wells Fargo (4.5% NRA)) and NationsBank (4.0% NRA) have also recently extended their leases through April 2018 and February 2020, respectively. Similar to Duke, Wells Fargo also elected to downsize by 3,835 sf (2.0% NRA); this unit currently remains vacant. According to the November 2014 site inspection, the property was found to be in Average condition. Within the past twelve months, the elevators have been upgraded and both the main lobby and first-floor break room have undergone renovations. All vacant units at this time appear to be in good condition and rent-ready.

There are currently ten loans on the servicer’s watchlist, representing 14.0% of the current pool balance. Eight of these loans (12.7% of the current pool balance) have been flagged due to items of deferred maintenance, while the remaining two loans (1.2% of the current pool) were added to the watchlist as a result of leasing related items. According to YE2014 financials, these loans had a WA DSCR and WA debt yield of 1.56x and 9.2%, compared to the DBRS UW figures of 1.35x and 9.0% at issuance, respectively. One of the loans on the servicer’s watchlist is highlighted below.

The 215 Ohio Street loan (Prospectus ID#52, 0.5% of the current pool balance) is secured by a six-story loft-style office building in Chicago, totaling 47,780 sf. The loan was placed on the watchlist in May 2015 due to a decline in rental revenue and upcoming lease expirations. As of YE2014 financials, the loan reported a DSCR of 0.63x, compared to the DBRS UW figure of 1.13x. The decline in rental revenue was a result of three tenants, ENGRi Fitness (17.3% NRA through May 2024), Ansarada (15% NRA through February 2026) and Alliance Chicago (15% NRA through July 2015), receiving reduced rental rates and rental abatement periods associated with their respective new leases. According to the September 2015 rent roll, the property was 100% occupied with an average rental rate of $18.37 psf gross, compared to an occupancy rate of 100% with an average rental rate of $20.30 psf gross as of August 2013. All three tenants’ full rental abatement periods have now ended; however, Ansarada’s lease provides a graduated abatement period as the tenant will not pay full rental rates until June 2019. In addition to the decline in rental revenue, Mirus Futures (15.0% NRA) recently had a lease expiration as of September 2015 and has vacated its space since this time. The servicer reports that the borrower is actively marketing the space.

At issuance, DBRS assigned investment-grade shadow ratings to one loan, the Gates at Manhasset (Prospectus ID#4, 5.43% of the current pool balance). DBRS has today confirmed that the performance of this loan remains consistent with investment-grade loan characteristics and has confirmed the shadow rating.

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 October 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.