DBRS Confirms All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7 with Stable Trends

DBRS, Inc. (DBRS) has today confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C7 (the Certificates) issued by Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7 as listed below:

-- 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 A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class PST at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

DBRS does not rate the first loss piece, Class H. The Class PST certificates are exchangeable for the Class A-S, B and C certificates (and vice versa).

This transaction consists of 63 fixed-rate loans secured by 122 commercial properties. There has been one loan repaid since issuance, Prospectus ID #45, Walgreens – Austin, Texas, with total collateral reduction of 4.3% since issuance as of the December 2015 remittance report. The pool is concentrated by loan size as the Top Five and Top Ten loans make up 39.6% and 55.6% of the pool, respectively, and there are 17 loans (12.1% of the pool) secured by single-tenant properties. Hotels also represent a relatively significant portion of the pool at seven loans for 15.8% of the transaction balance, with four of those loans in the Top 15.

YE2014 or newer figures were available for all loans in the pool except Prospectus ID #17, Sunvalley Shopping Center Fee (1.7% of the pool), which shows a most recent debt service coverage ratio (DSCR) of 1.50x as of YE2013. There are ten loans in the Top 15 for which no 2015 financial reporting is pulling to the servicer’s reporting files. DBRS has requested information from the servicer on the status of those statements and is awaiting a response. The YE2014 weighted-average (WA) DSCR for the pool was 1.90 times (x), with a WA debt yield of 10.9% based on the YE2014 net cash flow (NCF) figures and the outstanding loan balance as of the December 2015 remittance. These figures compare with the DBRS underwritten WA DSCR and WA debt yield at issuance of 1.80x and 10.2%, respectively.

There were six loans on the watchlist, comprising 17.6% of the pool balance, and one loan in special servicing, representing 1.2% of the pool, as of the December 2015 remittance report. Two of the watchlisted loans are in the Top 15, including the largest loan in the pool. Four of the six loans on the watchlist are reporting healthy DSCR and occupancy figures and are being monitored for upcoming tenant rollover or relatively minor deferred maintenance issues.

The largest loan on the watchlist, Prospectus ID #1, Chrysler East Building (12.4% of the pool), is secured by a 745,000 square foot (sf) Class A office property located in Midtown Manhattan at 666 East 3rd Avenue. The property benefits from direct access to the Grand Central Terminal and strong sponsorship in Tishman Speyer Properties (Tishman Speyer). At closing, Tishman Speyer retained a 20% equity interest in the property with institutional investors contributing nearly $200 million in cash equity. This is a pari passu loan, with the A-2 piece placed in the MSBAM 2013-C8 transaction. The loan is on the servicer’s watchlist for a low DSCR, which was 1.03x at Q3 2015, down from 1.92x at YE2014. The decline in NCF is the result of declining occupancy at the property as the Q3 2015 reporting showed 81.0% occupancy, down from 96.0% at issuance. The property has historically held occupancy at or above 95.0% and, according to CoStar, the subject’s Grand Central submarket showed a Class A vacancy rate of 11.0% at January 2016. DBRS has requested a leasing strategy update from the servicer and is awaiting the response. Given the property’s history of strong occupancy rates and the healthy submarket, DBRS expects that the current vacancy will be successfully recovered in the near term.

The second-largest loan on the watchlist is Prospectus ID #15, Concorde Green Retail (1.9% of the pool). This loan is being monitored for a low DSCR at YE2014 and Q2 2015 of 1.04x and 1.00x, respectively, driven by occupancy declines at the property over the past two years to 78.0% as of the September 2015 rent roll from the issuance level of 90.0%. The loan is secured by a grocery-anchored retail center comprising 200,000 sf in Glendale Heights, Illinois, a western Chicago suburb. The grocery anchor is Valli Produce, which represents 48.0% of the NRA on a lease through 2038. The property is well located along North Avenue, a heavily trafficked thoroughfare for this and surrounding suburbs. The servicer reports that the borrower is actively marketing the vacant space for lease, with no rental concessions being offered as of December 2015. DBRS will continue to monitor the loan for developments.

There is one loan in special servicing, Prospectus ID #25, Oakridge Office Park (1.2% of the pool). The loan is secured by a 316,000 sf office and data center complex located in Orlando, Florida. The park was built in phases between 1966 and 1983, with renovations most recently completed in 2005. The loan transferred to special servicing in June 2014 when the borrower stopped making payments following a space reduction for the property’s largest tenant, AT&T, which occupied approximately 34.0% of the NRA and reduced its space by half. The property also lost a tenant, which previously occupied approximately 9.5% of the NRA, to bankruptcy. According to CoStar, Class B properties in the subject’s Orlando Central Park submarket have hovered between 20.0% and 25.0% vacancy since 2011, with vacancy at 17.2% as of January 2015. The special servicer reports an occupancy rate of 48.0% for the property as of August 2015.

A January 2015 appraisal valued the property at $16.0 million, down from the issuance value of $24.0 million. The January 2015 appraisal implies value just over the outstanding trust exposure as of December 2015 but, given the slow leasing activity at the property within a relatively stable submarket, DBRS believes that the property could be slow to trade, which could increase the likelihood of a loss to the trust. The special servicer reports that a deed-in-lieu is in escrow, with the workout strategy being dual tracked between marketing the property for sale through the receiver (which has been in place since February 2015) and foreclosure as of the December 2015 remittance report. DBRS will monitor the situation closely for developments.

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

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