DBRS Changes Trends on Three Classes and Confirms All Classes of GS Mortgage Securities Trust 2013-GCJ16

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GCJ16 (the Certificates) 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 A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

The trends on the Classes B, C and PEZ Certificates have been changed to Positive from Stable. The trends on the remaining classes remain Stable. The Classes A-S, B and C Certificates may be exchanged for the Class PEZ Certificates (and vice versa). DBRS does not rate the first loss piece, Class H.

The rating confirmations and trend changes reflect the overall stable performance of the transaction, which has experienced a collateral reduction of 4.3% since closing as a result of scheduled loan amortization and the unscheduled repayment of one loan in May 2016. At issuance, the pool consisted of 77 fixed-rate loans secured by 134 commercial and multifamily properties. As at the October 2016 remittance, 76 loans remain in the pool with an aggregate outstanding principal balance of $1,040.1 million. Two loans, representing 6.9% of the total pool balance, are fully defeased, including the third-largest loan. As at the most recent year-end reporting, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.65 times (x) and a WA debt yield of 11.2%. At issuance, the DBRS WA DSCR and debt yield for the pool were 1.41x and 9.4%, respectively. As at YE2015 financials, the top 15 loans reported a WA DSCR of 1.62x and a WA net cash flow increase of 13.4% over the DBRS underwritten cash flows.

As at the October 2016 remittance, there are no loans in special servicing and nine loans on the servicer’s watchlist, representing 12.0% of the current pool balance. Of those loans, six have been flagged for deferred maintenance concerns generally minor in nature, while one loan is being monitored for an upcoming rollover concern that is currently being addressed by the borrower. The remaining two loans, representing 2.2% of the pool balance, are being monitored for performance-related concerns and are highlighted below. Additionally, the largest loan in the pool is highlighted.

The Miracle Mile Shops loan (Prospectus ID#2; 6.7% of the current pool balance) is secured by a 448,835-square-foot (sf) Class A super-regional mall located in Las Vegas at the base of the Planet Hollywood Resort & Casino. The subject loan has a trust balance of $70.0 million along with $510.0 million of additional debt spread across five pari passu companion pieces securitized in five other commercial mortgage-backed security transactions. The whole loan is interest only for another 22 months. As at the June 2016 rent roll, the property was 95.7% occupied with an average base rental rate of $95.07 per square foot (psf) compared with 98.1% and $85.10 psf, respectively, at issuance; however, three tenants have since taken occupancy, including an H&M expansion, increasing occupancy to 98.0%, which is in line with issuance. Upcoming rollover is granular, with 25 tenants representing 13.8% of the net rentable area (NRA) having leases that expire within 12 months; the largest, Cheeseburger Las Vegas (3.5% of the NRA), has reported a year-over-year sales decline of 13.8% to $184 psf as at the trailing 12 months ended May 2016. The two largest tenants, V Theater and Saxe Theater, reported sales declines of 5.5% (to $425 psf) and 10.1% (to $389 psf), respectively, over the same period. Total sales for comparable in-line tenants under 10,000 sf have declined by 4.8% year over year to $804 psf compared with $818 psf at issuance. The loan reported an amortizing YE2015 DSCR of 1.15x, which is in line with the DBRS underwritten DSCR and slightly improved over the YE2014 figure of 1.12x. Increases in effective gross income through Q2 2016 have resulted in an annualized DSCR of 1.24x. Despite the recent declines in sales, loan performance is expected to remain stable as the occupancy rate remains strong and rental rates at the mall continue growing.

The McAllister Plaza loan (Prospectus ID#15; 1.7% of the current pool balance) is secured by a 190,223 sf Class A office building located in San Antonio, Texas, adjacent to the San Antonio International Airport. The loan was added to the servicer’s watchlist because of a decline in occupancy. According to the July 2016 rent roll, the property was 75.1% occupied with an average base rental rate of $24.09 psf compared with 93.3% and $22.63 psf, respectively, at issuance. The largest tenant at the property is Traveler’s Insurance, which leases 22.0% of the NRA through October 2018 at $24.30 psf. The decline in occupancy is a result of the second-largest tenant at issuance vacating the property in August 2014, with its former space remaining vacant since; however, that space will be occupied once again in November 2016 when two new tenants (8.2% of the NRA each) will take occupancy, with their respective leases running through May 2023 and April 2027. Their initial rental rates are $22.00 psf and $21.50 psf, respectively, with gradual rent bumps through their respective loan terms, which is comparable with the $22.50 psf paid by the previous tenant. Additionally, the tenants were given rent-free periods of four and six months, respectively. However, the current second-largest tenant, BP Exploration & Production (8.6% of the NRA), is confirmed to be vacating its space at lease expiration in December 2016, which will result in a net occupancy increase of 7.7% to 82.8% by YE2016. The expected corresponding vacancy rate is similar to the vacancy and availability rates of 13.2% and 17.8%, respectively, for similar Class A office properties within a 2-mile radius of the subject, according to CoStar. The loan reported a YE2015 DSCR of 1.21x, a decline from the DBRS underwritten DSCR of 1.32x, driven by the decrease in occupancy at the subject since issuance. While Q2 2016 annualized financials reported a further decreased DSCR of 1.12x, performance is expected to improve once the recently signed tenants are in occupancy and are paying full, unabated rent.

The 215 Ohio Street loan (Prospectus ID#52; 0.5% of the current pool balance) is secured by a 47,780 sf Class B office property in the River North submarket of Chicago. The property has been on the servicer’s watchlist since May 2015 because of a low DSCR of 0.63x at YE2014 as a result of the largest tenant at the time vacating the property in mid-2014. While that space was re-tenanted and the property was fully occupied again in early 2015, occupancy once again decreased to 85.0% when another tenant vacated upon lease expiration in September of that year, resulting in a YE2015 DSCR of 0.80x. According to Q2 2016 reporting, the annualized DSCR remains at 0.80x. The River North submarket of Chicago remains healthy with average office vacancy and availability rates of 6.8% and 9.9%, respectively, according to CoStar. According to the borrower, they are optimistic about reaching full occupancy again by the end of Q1 2017 given the leasing momentum in the submarket. The property continues to be actively marketed by the property manager, Foresite Realty Partners.

At issuance, DBRS assigned an investment-grade shadow rating to The Gate at Manhasset loan (Prospectus ID#4; 5.5% of the current pool balance). While collateral occupancy remains strong at 98.8% and the loan reported a YE2015 DSCR of 1.99x (an improvement over the DBRS underwritten DSCR of 1.81x), tenant sales at the mall have dropped significantly since issuance. Anchor tenant Crate & Barrel (C&B; 36.7% of the NRA) reported trailing-12-month sales of $301 psf as at June 2016, representing a 15.5% decline from issuance. Major tenants Gap, Urban Outfitters and Abercrombie & Fitch registered larger declines of 33.8%, 40.2% and 33.7%, respectively, over the same period. While property cash flow is not affected directly as tenants do not pay percentage rents, these continuous sales declines have resulted in elevated tenant occupancy cost levels. Additionally, the three largest tenants, C&B, Gap and Urban Outfitters, collectively occupying 61.6% of the NRA, have lease maturities in January 2022, creating rollover risk concern prior to loan maturity in November 2023. As a result, DBRS has today removed the previously assigned shadow rating for this loan.

The ratings assigned to the Classes B, C, D, F, G and PEZ Certificates materially deviate from the higher ratings implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology; in this case, the rating reflects the sustainability of loan performance trends not demonstrated, as well as a higher than average concentration of retail properties within the collateral pool. The improvement in performance of the underlying collateral to date is reflected with the aforementioned trend changes to bonds higher in the capital structure.

For more information on this transaction and supporting data, please log in to DBRS CMBS IReports at www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly, with periodic updates provided in the DBRS CMBS IReports platform.

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.

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (October 2016), which can be found on our website under Methodologies.

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