DBRS Upgrades Five Classes of GS Mortgage Securities Trust 2013-GCJ16

DBRS Limited (DBRS) upgraded the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GCJ16 (the Certificates) issued by GS Mortgage Securities Trust 2013-GCJ16 (the Trust):

-- Class X-B to AAA (sf) from AA (high) (sf)
-- Class B to AA (high) (sf) from AA (sf)
-- Class C to A (high) (sf) from A (sf)
-- Class PEZ to A (high) (sf) from A (sf)
-- Class D to BBB (high) (sf) from BBB (sf)

DBRS also confirmed the ratings on the following classes:

-- 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 F at BB (low) (sf)
-- Class X-C at B (sf)
-- Class G at B (low) (sf)

DBRS has changed the trend on Classes F, G and X-C to Positive. All other trends are Stable.

The Class A-S, Class B and Class C Certificates may be exchanged for the Class PEZ Certificates (and vice versa).

These rating upgrades and Positive trend assignments on three Classes reflect the strong overall performance of the transaction, which has benefited from a collateral reduction of 24.2% since issuance, with 65 of the original 77 loans remaining in the pool as of the September 2018 remittance report. One loan, University Tower (Prospectus ID #10, 3.0% of the pool) was scheduled to mature in October 2018, and DBRS expects that loan will successfully repay with the next remittance. In addition, nine loans, representing 7.4% of the pool, are fully defeased. Loans representing 90.6% of the pool reported year-end (YE) 2017 financials, with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.75 times (x) and 12.1%, respectively. Based on the servicer’s most recent reporting, the 15 largest loans, which represent 60.4% of the pool, reported a WA net cash flow (NCF) growth of 22.3% over the DBRS issuance figures, with a WA DSCR and debt yield of 1.76x and 12.0%, respectively.

As of the September 2018 remittance report, there are six loans, representing 11.6% of the pool, on the servicer’s watchlist, and one loan, representing 1.4% of the pool, in special servicing. Only one loan, Holiday Inn Express, Muncie (Prospectus ID #61, 0.5% of the pool) is being monitored for performance issues. The remaining loans are being monitored for deferred maintenance and, as previously mentioned, upcoming maturity. It is noteworthy that the pool has a significant concentration of retail properties, which represented 42.5% of the pool balance as of the September 2018 remittance. In general, these loans are performing as expected, with WA NCF growth of 11.6% over the DBRS NCF figures derived at issuance, and a WA in-place DSCR of 1.56x.

The Park 41 Evansville loan (Prospectus ID #29, 1.4% of the pool), which is secured by a Class B, multi-tenant industrial building located in Evansville, Indiana, transferred to special servicing in March 2018 due to imminent monetary default. Over the last three years, loan payments have been frequently late but received within the grace period. In January and February 2018, payments were 30 to 59 days delinquent. As of the September 2018 remittance, the loan was current. According to special servicer commentary in September 2018, a forbearance agreement was executed in July 2018 with the loan expected to defease by September 14, 2018. DBRS has requested confirmation that the defeasance was executed. The concerns with this loan are generally sponsor-related, as the sponsor, Kunkel Group (Kunkel), a design-build architecture firm based out of Evansville, has been involved in several legal issues over the past few years. DBRS located articles online suggesting ongoing legal battles between Kunkel and a utility service provider over the discharge of water into city sewers without proper permits at another Evansville property owned by the firm. It is also notable that the sponsor has another CMBS loan securitized in the COMM 2014-CCRE17 transaction that has been in special servicing since July 2017.

Tenancy at the property is concentrated between the four largest tenants, which collectively occupy 63.0% of the net rentable area (NRA). The two largest tenants, Park 41 Logistic (27.8% of NRA) and SRG Global (16.5% of NRA) have lease expiration dates that are set to expire in Q4 2018. Notably, Park 41 Logistic is a sponsor-owned entity. The loan reported an annualized Q3 2017 DSCR of 2.35x, which is an increase from the YE2016 DSCR of 1.81x and the DBRS Term DSCR derived at issuance of 1.63x. In the analysis for this loan, DBRS applied a stressed cash flow scenario as well as a sponsor strength penalty to increase the probability of default to reflect the increased risks in the late payments and legal issues surrounding Kunkel in recent years. For additional information on this loan, please see the loan commentary on the DBRS Viewpoint platform, for which information is provided below.

Classes X-A, X-B and X-C are interest-only (IO) certificates that reference a single rated tranche or 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:
-- Miracle Mile Shops (Prospectus ID #2, 8.5% of pool)
-- Regency Portfolio (Prospectus ID #6, 4.9% of pool)
-- McAllister Plaza (Prospectus ID #15, 2.1% of pool)
-- Park 41 Evansville (Prospectus ID #29, 1.4% of 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 F and Class G are different than that implied by the analysis within the DBRS North American Direct Sizing Hurdles because of the loan-level event risk posed by the uncertainty surrounding the resolution of the specially serviced loan, Park 41 Evansville; however, the Positive trends assigned to those classes reflect the increased credit support since issuance, as well as the overall healthy performance of the pool.

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

The principal methodology is the North American CMBS Surveillance Methodology, 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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