DBRS Confirms All Classes of COMM 2013-CCRE6

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE6 (the Certificates) issued by COMM 2013-CCRE6 Mortgage Trust, as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 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 X-B at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (sf)
-- Class C at A (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 Class PEZ certificates are exchangeable for the Classes A-M, B and C certificates (and vice versa).

The rating confirmations reflect the overall performance of the transaction as reflected in the most recent debt service coverage ratio (DSCR) and occupancy figures available for the underlying loans. The transaction consists of 48 fixed-rate loans secured by 80 commercial properties. Since issuance, the transaction has experienced a collateral reduction of 2.1% as a result of scheduled amortization, with all of the original 48 loans remaining in the pool. The transaction is reporting a weighted-average (WA) DSCR of 2.20 times (x) and a WA debt yield of 11.6% based on YE2014 financials. The top 15 loans in the pool reported a WA DSCR of 2.16x and a WA debt yield of 10.5%. The YE2014 performance metrics for the overall pool compares with the DBRS underwritten (UW) DSCR and debt yield at issuance of 2.20x and 11.2%, respectively.

As of the December 2015 remittance, there are three loans on the servicer’s watchlist, representing 9.4% of the current pool balance. Two of these loans are in the top 15 and are further discussed below.

The largest loan on the watchlist is Prospectus ID#5, 540 West Madison Street, representing 6.8% of the current pool balance. This loan is secured by a 1.1 million square foot (sf) Class A office property located in downtown Chicago, Illinois. Considered to be one of the most technologically advanced and innovative office buildings in Chicago, it features an extensive uninterruptable power supply with an emergency power supply system as well, as 63,000 sf of data center space. This loan was placed on the watchlist as the largest tenant, Bank of America (BofA), has exercised multiple options to downsize their space after acquiring the original tenant, LaSalle National Bank (LNB). The building was originally built-to-suit for LNB and at issuance, it occupied 69.0% of the net rentable area (NRA). Over the past few years, BofA has exercised multiple options to give back space and currently occupies 23.1% of NRA through December 2022. According to the servicer, it has one remaining option to give back an additional 3.0% of NRA at the end of 2016. As of the March 2015 rent roll, occupancy was 74.3%; however, the servicer has noted that the borrower has been in negotiations with multiple prospective tenants to lease the vacant spaces. The property is listed as 93.1% occupied on CoStar, which includes a new tenant (2.7% of NRA) that will occupy the 18th floor starting June 2016.

At issuance, it was widely assumed that BofA would execute its options to downsize at the property and, as a result, the loan was structured with a tenant improvement/leasing commission reserve of $30 million. As of December 2015, the balance of the reserve is $22.8 million. It is likely that the borrower will be able to continue to attract and sign prospective tenants given the large reserve balance and the active marketing of the subject. In addition, the borrower has proven that they are able to fill vacant units at the property despite a major tenant giving back a significant amount of space. While the YE2014 DSCR declined to 1.99x compared with the YE2013 DSCR of 3.08x, as the new leases take place, it is expected that the performance of the property will improve to the expected levels at issuance.

Prospectus ID#14, 70 West 45th Street, representing 2.4% of current pool balance, is secured by a 41-unit multifamily property located in Manhattan, New York. The collateral units are located within a 48-story building, Cassa Hotel and Residences, which also includes a 165-key full-service hotel and 12 residential condominiums, which are not collateral for the loan. The collateral is located in the Midtown West submarket and is two blocks northwest of Grand Central Station and four blocks northeast of Times Square. Surrounding buildings are mostly office buildings or other residential buildings. The units operate as corporate rental apartments as the majority of the tenancy is comprised of corporate users or organizations, which provide accommodations for their employees. All of the leases carry short terms for one or two years; however, it is noted that several tenants are original tenants.

The sponsor of the loan is Salim and Ezak Assa, who are the key principals of Assa Properties, a full-service real estate company. The property was developed by the sponsors under the ownership title of Waterscape Resort LLC. The property has a history of legal issues as during the development of the subject, the contractor, Pavarini McGovern, failed to obtain subguard insurance as required in the original development contract. As a result, $20 million in mechanical liens were filed against the property. The sponsors voluntarily filed Chapter 11 bankruptcy and contested the mechanical liens though bankruptcy courts, where it was determined that the maximum expense of the liens was $11 million. All lenders have been repaid and the $11 million is held in a third-party escrow account. It has been determined to be appropriate to cover all outstanding expenses and a clean title has been issued. As a result, DBRS modeled the loan at issuance with an elevated probability of default due to sponsors’ legal issues surrounding the property.

This loan has been placed on the watchlist as the servicer is in receipt of a lawsuit against the borrower. The Board of Managers of the Cassa New York Condominium (plaintiff) has brought on the lawsuit, which has named the borrower and the trust as one of the defendants. The lawsuit alleges that the defendants have not paid their portion of common charges resulting in a breach of contract. According to the notice, the common charges have not been paid since December 2013 and there are $2.2 million in arrears, with $1.6 million being attributable to the collateral in this transaction. The borrower contests that the lawsuit is unsubstantiated and that it has paid the collateral’s portion of the common charges through July 2015. In October 2015, the parties appeared before a judge and it was suggested that the parties attempt to resolve the dispute and will take time deciding the motion while allowing the parties an opportunity to settle. As the property is cash flowing, the master servicer is currently escrowing $92,000/month for any ongoing common charges. At this time there is no expected time frame in which the dispute will be settled.

Overall, occupancy and financial performance have been in line with issuance metrics. According to the September 2015 rent roll, the property is 95.1% occupied with all tenants on annual leases. According to the most recent financial reporting, the Q2 2015 DSCR is 1.32x. At YE2014, the DSCR was 1.84x, which has decreased since the YE2013 DSCR of 1.91x; however, current performance still remains above the DBRS UW Term DSCR of 1.31x. Given the location of the collateral, the historical occupancy to corporate tenants and financial performance, it is expected that the loan will not result in a foreclosure as the servicers and borrower are working to defend the lawsuit and resolve the dispute. For the purpose of this review, DBRS maintained the same increased probability of default for the sponsor at issuance.

At issuance, DBRS shadow-rated one loan investment-grade: Prospectus ID#1 Federal Center Plaza, representing 8.9% of the current pool balance. DBRS confirms with this review that the performance of this loan 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 December 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.

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

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (December 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.