DBRS Confirms Ratings of WFRBS 2013-C18 Mortgage Trust, Trends Changed to Negative for Two Classes

DBRS Limited (DBRS) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-C18 (the Certificates), issued by WFRBS Commercial Mortgage Trust 2013-C18 as follows:

-- 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

In addition, DBRS changed the trends to Negative on the Class F and Class E certificates. All other trends are Stable.

The rating confirmations reflect the overall stable performance exhibited since issuance, with Negative trends assigned to the two junior classes listed above to reflect DBRS’s concerns surrounding two top-ten loans in Hotel Felix Chicago (Prospectus ID #5, 6.6% of the pool) and Cedar Rapids Office Portfolio (Prospectus ID #9, 2.3% of the pool), both of which are in special servicing. In addition, a third loan in the top ten, HIE at Magnificent Mile (Prospectus ID #10, 2.3% of the pool), has recently suffered from significant cash-flow declines at the property.

At issuance, the collateral consisted of 67 fixed-rate loans, secured by 73 commercial properties, with an original trust balance of $1,038 million. As of the July 2018 remittance, 66 loans remain in the pool with an aggregate principal balance of $983 million, representing a collateral reduction of 5.3% since issuance due to the repayment of one loan and scheduled loan amortization. Per the July 2017 remittance, approximately 95.4% of the pool reported year-end (YE) 2017 financials, with a weighted-average (WA) debt-service coverage ratio (DSCR) and WA debt yield of 2.43 times (x) and 12.9%, respectively. These figures compared with the WA DBRS Term DSCR and WA DBRS Debt Yield at issuance of 2.14x and 11.3%, respectively. Despite the performance declines for the two previously mentioned loans in special servicing, overall cash flow growth has been healthy thanks to strong performers in the top 15, which reported a WA net cash flow growth of 17.9% as of the YE2017 reporting, with a range of -92.0% and 62.7%. In addition, the pool also benefits from defeasance, as three loans, collectively representing 5.7% of the pool, have been fully defeased as of the July 2018 remittance, with another defeased loan, Sullivan Center (Prospectus ID #6, 4.0% of the pool), repaid with the recent August 2018 remittance.

As of the July 2018 remittance, there are two loans (7.2% of the pool) in special servicing and 17 loans (12.0% of the pool) on the servicer’s watchlist. Ten of the loans on the watchlist are secured by co-op properties, with a WA loan-to-value of 10.9%.

The largest of the loans in special servicing, Hotel Felix Chicago, is secured by a 225-key, limited-service boutique hotel located in the River North district of Chicago, Illinois. The loan transferred to special servicing in April 2018 due to monetary default following a decline in performance because of soft market conditions with an oversupply of limited-service/boutique hotels, paired with a significant increase in operating expenses, primarily driven by increased real estate taxes. The loan has since entered into a short-term forbearance agreement through the end of August 2018 and the special servicer is working with the sponsor to determine a longer-term workout strategy. Given the performance declines at the property and the disruption in performance for hotels in the subject’s vicinity, partially driven by ongoing road construction, DBRS assumed a stressed scenario for this loan in the analysis to inflate the probability of default.

The second loan in special servicing, Cedar Rapids Office Portfolio, is secured by two cross-collateralized Class A office buildings located in Cedar Rapids, Iowa. The loan was transferred to special servicing in May 2017 after three technical defaults were identified and the sponsor requested a loan modification in response. The servicer has initiated foreclosure, but the process is currently hung up in the courts, with a discovery period scheduled through October 2018. Based on the February 2018 appraisal that showed an as-is value of $18.3 million, DBRS assumed a loss severity in excess of 40.0% in the analysis for this review.

At issuance, DBRS assigned an investment-grade shadow rating to two loans: Westfield Garden State Plaza (Prospectus ID#1, 15.3% of the pool) and The Outlet Collection – Jersey Gardens (Prospectus ID#3, 14.2% of the pool). DBRS confirmed that the performance of these loans remains consistent with the investment-grade loan characteristics.

Class X-A is an interest-only (IO) certificate that references multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Westfield Garden State Plaza (Prospectus ID#1, 15.3% of the pool)
-- AmericasMart (Prospectus ID#2, 12.9% of the pool)
-- The Outlet Collection – Jersey Gardens (Prospectus ID#3, 14.2% of the pool)
-- Hotel Felix Chicago (Prospectus ID#5, 4.6% of the pool)
-- Hudson Mall (Prospectus ID#8, 2.4% of the pool)
-- Cedar Rapids Office Portfolio (Prospectus ID#9, 2.3% of the pool)
-- HIE at Magnificent Mile (Prospectus ID#10, 2.3% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

The rating assigned to Class B materially deviates from the higher ratings implied by the quantitative results. 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 results that is a substantial component of a rating methodology. The deviation is warranted given uncertain loan level event risk.

Notes:
All figures are in U.S. dollars otherwise noted.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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