DBRS Confirms Ratings of COMM 2013-CCRE8 Mortgage Trust

DBRS, Inc. (DBRS) has today confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE8 (the Certificates) issued by COMM 2013-CCRE8 Mortgage Trust 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-5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-SBFL at AAA (sf)
-- Class A-SBFX 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 (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

DBRS does not rate the first loss piece, Class G. All trends are Stable. The Class A-SBFX certificates are exchangeable with the Class A-SBFL certificates (and vice versa).

The rating confirmations reflect the overall stable performance of the pool, which remains in line with DBRS’s expectations at issuance. As of the February 2016 remittance, the pool reported a weighted-average (WA) in-place debt service coverage ratio (DSCR) of 2.10 times (x), with WA debt yield of 10.5%. These figures compare with the DBRS underwritten (UW) levels of 1.91x and 9.5%, respectively. The pool has had a collateral reduction of 2.7% since issuance, with two loans defeased, representing 0.6% of the pool. The transaction benefits from a high concentration of loans secured by properties located in urban markets, which have historically shown lower volatility as compared with other market types, at 39.0% of the pool balance. The pool also has strengths in an 11.0% concentration of loans that are structured with shorter amortization schedules that range between 20 and 25 years.

The pool is concentrated by loan size, as the largest ten loans represent 58.2% of the pool balance, with concentration also seen in office property types, with 48.2% of the pool balance secured by office properties or mixed-use properties with a heavy office component. These factors are mitigated by the strength of the largest and sixth-largest loans, which comprise 19.6% of the pool combined and are considered low leverage loans secured by office properties situated in high value, highly desirable locations in New York. There is also a high concentration of loans with interest-only (IO) structures (20.9% of the pool) or partial IO structures (35.7% of the pool), which results in a relatively high concentration of loans showing a DBRS refinance DSCR below 1.0x (13 loans, 42.6% of the pool). However, mitigating these risks are the fact that the IO loans are secured by high value and/or trophy assets and loans with IO and partial IO structures are treated more punitively, increasing the probability of default (POD) for each in the DBRS modeling.

As of the February 2016 remittance, there were six loans on the servicer’s watchlist, representing 3.9% of the pool balance, with two loans in special servicing, representing 1.1% of the pool balance. Most of the loans on the watchlist are being monitored for cash flow declines since issuance, with those loans exhibiting declines likely to be sustained over the near to medium term modeled with an increased POD to reflect the increased risks associated with each. The second-largest loan on the watchlist and the largest loan in special servicing are detailed below.

The second-largest loan on the watchlist is Prospectus ID#28, 11000 Equity Drive (0.84% of the pool), secured by a 63,700 square foot low-rise office property located in Houston, Texas. The loan was placed on the watchlist for the expiration of the largest tenant, Superior Energy Services, which occupied approximately 53.0% of the net rentable area (NRA) on a lease through March 31, 2015. The tenant did not renew, vacating its space 90 days after lease expiry, driving the property’s occupancy rate to approximately 47.0% as of Q2 2015. The servicer reports that, while the borrower has shown the space to several prospects and has had discussions with existing tenants to expand into additional space, nothing concrete has been finalized as of February 2016. The property’s second-largest tenant is Satterfield & Pontikes Construction, Inc., which occupies approximately 36.0% of the NRA on a lease that expires in November 2016. According to CoStar, the property’s West Belt submarket had an overall vacancy rate of 19.1% at February 2016, up from the five-year average of 13.1%. There are structural mitigants in place in a leasing reserve that showed a balance of $1.31 million ($20.57 psf) as of the February 2016 remittance report and in a cash trap provision that will be enforced when the in-place DSCR falls below 1.15x for two consecutive quarters. However, given the decline in outlook for the Houston office market, driven by the declines in performance for the energy sector since issuance, DBRS anticipates the space could be difficult to re-lease in the near term and has modeled the loan with an increased POD to reflect the increased risk.

The largest specially serviced loan is Prospectus ID#29, Georgetown MHC Portfolio, which represents 0.74% of the pool. The loan is secured by a 504-pad manufactured housing portfolio comprising three properties located in Georgetown, Kentucky. The loan transferred to the special servicer in March 2014 for payment default. The servicer cites mismanagement for the borrower’s inability to meet the debt service obligations, as, up to the point of the loan’s transfer through the end of 2014, cash flows covered well above 1.0x. Initially, negotiations with the borrower showed signs of a positive outcome, but those have since fallen through and the servicer filed for foreclosure in late 2015, with the deed expected to transfer by the end of Q1 2016. The servicer has obtained a January 2016 appraisal that values the portfolio at $11.8 million, down from $16.2 million at issuance. Although the appraisal implies there is value outside of the trust’s total exposure of approximately $11.0 million, DBRS believes a loss is still be likely in a disposition scenario as the portfolio’s tertiary location will limit the pool of potential buyers, which could depress the sales price below the appraised value, and proceeds will be reduced when including fees and expenses.

At issuance, DBRS rated two loans investment grade in the pool, Prospectus ID#1, 375 Park Avenue (15.5% of the pool) and Prospectus ID#6, The Paramount Building (4.1% of the pool). DBRS confirms that both loans continue to exhibit investment-grade characteristics with this review.

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.

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