DBRS Confirms Ratings of GS Mortgage Securities Trust 2013-GCJ14

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GCJ14 (the Certificates) issued by GS Mortgage Securities Trust 2013-GCJ14 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 A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X-A at AAA (sf)
-- Class X-C at AAA (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class H. The Class A-S, Class B and Class C Certificates may be exchanged for the Class PEZ Certificates (and vice versa).

The rating confirmations reflect the overall stability of the transaction, which has experienced a collateral reduction of 4.2%, as a result of scheduled loan amortization and the liquidation of one loan since closing. At issuance, the pool consisted of 84 fixed-rate loans secured by 132 commercial properties. As of the June 2016 remittance, 83 loans remain in the pool, with an aggregate outstanding principal balance of $1,190.6 million. The pool is geographically diverse, with properties spread out across nine states for loans in the top 15. The top 15 loans continue to exhibit stable performance with a weighted-average debt service coverage ratio (DSCR) of 1.85 times (x), based on the most recent year-end reporting available for the individual loans. As of the June 2016 remittance, one loan representing 2.1% of the current pool balance is fully defeased.

There are no loans in special servicing and 18 loans on the servicer’s watchlist, representing 28.6% of the current pool balance; however, only six of these loans are individually above 1.0% of the current pool balance, including four of the top 15 loans. Three of these loans have been flagged for non-performance-related reasons limited to deferred maintenance. The remaining loan (Cranberry Woods Office Park) and two additional loans on the servicer’s watchlist are discussed below.

The Cranberry Woods Office Park loan (Pros ID#4, 4.6% of the pool balance) is secured by a three-building office portfolio in Cranberry Township, Pennsylvania, leased to three tenants. This loan was added to the watchlist after the former largest tenant, Cellco Partnership (30.9% of the net rentable area (NRA)), operating as Verizon Wireless (Verizon), vacated its space in December 2015, ahead of its original September 2016 lease maturity date. Verizon paid a $1.3 million termination fee to end its lease. According to the March 2016 rent roll, the total property occupancy was reported at 67.2%, compared with 95.0% at issuance; however, according to the servicer, the borrower was able to secure a replacement tenant to occupy the entire Verizon space. FedEx Ground Package Systems, Inc. (FedEx) was approved by the lender in January 2016, and is expected to take occupancy in Q3 2016, at which point, occupancy will rebound to 98.0%. FedEx will pay a base rental rate of $23.50 per square foot (psf), which compares favourably with the $16.00 psf rental rate paid by Verizon and similar to the average rental rate in the Butler County submarket in the Pittsburgh, Pennsylvania metropolitan statistical area. According to CoStar, Class A office properties greater than 50,000 square feet (sf) located in Butler County reported an average rental rate of $25.68 psf with an average vacancy and availability rate of 6.0% and 9.9%, respectively. As of YE2015, the loan reports a DSCR of 1.37x. While property performance may decrease in 2016 because of the temporary period of increased vacancy, future performance is expected to stabilize with the addition of FedEx to the property.

The Fountain Park loan (Pros ID#24, 1.2% of the pool balance) is secured by a 73,174 sf mixed-use retail and office property located in Naples, Florida. This loan was added to the watchlist because of the subject’s elevated retail vacancy. The former second-largest tenant, Calistoga Bakery Cafe (Calistoga Café; 8.2% of the NRA – paid $34.22 psf) vacated the property in May 2015, ahead of its May 2019 lease expiration. The tenant had struggled financially and did not make any rental payments in 2015, which resulted in a decline in net cash flow and a subsequent decline in DSCR. As of YE2015, the loan reported a DSCR of 1.12x, compared with 1.36x at YE2014. According to the March 2016 rent roll, the property reported an occupancy rate of 89.7%, compared with 98.5% at issuance. The reported occupancy is inclusive of the subject’s newest tenant, The Original Pancake House, occupying the former Calistoga Cafe space, paying a rental rate of $25.00 psf on a lease that extends to October 2025. According to CoStar, mixed-use office and retail properties located in the North Naples submarket of Florida reported an average rental rate of $22.45 psf and average vacancy and availability rate of 7.0% and 8.7%, respectively. Despite the recent tenant rollover issues, the servicer confirmed that the subject’s largest tenant, Stonewood Grill, exercised its first option to extend its lease for an additional five years at the same rental rate of $24.88 psf, which is still above the submarket average.

The Centerpointe Business Plaza loan (Pros ID#39, 0.7% of the pool) is secured by a 102,193 sf office building in Kent, Washington. This loan was added to the servicer’s watchlist because of increases in expenses, which resulted in a low DSCR. The property was also flagged because of upcoming tenant rollover concerns. The decline in DSCR is attributed to a 9.0% increase in Total Operating Expenses driven by a 23.43% increase in Utility Expenses. As of the YE2015 rent roll, the property was 79.8% occupied, consistent with occupancy at YE2014 of 78.0%; however, three tenants representing 28.9% of the NRA have lease expirations in the next 12 months, including the largest tenant, PPI Group (13.1% of the NRA), which has a lease expiration in February 2017. The servicer indicated that the tenant is content with its space, but lease renewal negotiations have yet to commence. The servicer also confirmed that the fourth-largest tenant, Gaylord Industries (10.13% of the NRA) vacated the property at its lease expiration in November 2015. The borrower is currently working on a new lease for approximately half of the former Gaylord Industries space. According to CoStar, the Kent Valley North office submarket of Washington is relatively soft, reporting a five-year average rental rate, vacancy rate, and availability rate of $10.33 psf, 9.4% and 16.2%, respectively. Leasing activity at the property is ongoing, as the borrower and a new leasing team continue to hold discussions with current tenants looking to extend and possibly expand their spaces; however, no terms have been finalized to-date.

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 (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.