DBRS Morningstar Assigns Ratings to COMM 2013-GAM Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned ratings to the COMM 2013-GAM, Commercial Mortgage Pass-Through Certificates issued by COMM 2013-GAM Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class F at BB (sf)

All trends are Negative as the underlying collateral continues to face performance challenges associated with the Coronavirus Disease (COVID-19) global pandemic. Additionally, the mortgage loan secured by the collateral is scheduled to mature in February 2021 and it is uncertain at this time whether the sponsor will be able to successfully secure take-out financing at maturity.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about October 13, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, at www.dbrsmorningstar.com. On April 24, 2020, DBRS Morningstar placed the ratings on its outstanding SASB transactions secured by retail properties Under Review with Negative Implications while MCR placed the ratings on its outstanding SASB transactions secured by retail properties Under Review Negative as the global shelter-in-place and mandatory retail closures related to the coronavirus have contributed to retail bankruptcies and anticipated vacancies in retail centers. For further information on these rating actions, please see the DBRS Morningstar press release dated April 24, 2020, at www.dbrsmorningstar.com and the MCR press release dated April 24, 2020, at www.morningstarcreditratings.com.

To assign ratings to this transaction, DBRS Morningstar considered both the impact of the updated NA SASB Methodology and its scenarios attributable to the ongoing coronavirus pandemic on the ratings.

Because of the coronavirus’ significant impact on retail performance, DBRS Morningstar first considered the application of the updated NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology” to arrive at a baseline result, which incorporated qualitative assumptions, capitalization rates, and loan-to-value (LTV) ratio sizing benchmark quality/volatility adjustments and excluded any potential changes in current or future expected asset performance resulting from the coronavirus.

DBRS Morningstar then overlaid scenarios incorporating additional reductions in net cash flow (NCF) to account for exposure to bankrupt or closed tenants. This resulted in stressed collateral value declines consistent with the projections in its “Global Macroeconomic Scenarios: September Update” published on September 10, 2020, on top of the baseline result to determine the impact of coronavirus-related changes in asset performance on the subject transaction on a tranche-by-tranche basis. For more information on these stress scenarios, please refer to the Coronavirus Impact Analysis section of this document. The global macroeconomic scenarios include a moderate decline of 15% for all commercial real estate (CRE), which acts as an average for all CRE property types. However, DBRS Morningstar expects a greater range of value decline for retail properties, ranging from 10% to 45% based on the type of tenant composition, exposure to bankrupt or challenged retailers, asset sponsorship, and asset location. DBRS Morningstar expects that lower-tier regional malls with in-line sales generally less than $300 per square foot (psf) will be the most affected.

LOAN/PROPERTY OVERVIEW
The collateral for the loan is the fee-simple and leasehold interest in the 1.7 million-square-foot (sf) Green Acres Mall located in Valley Stream, New York, which is in Nassau County, just east of the borough of Queens. The mall was originally built in 1956 and has been expanded and renovated many times with the last major expansion occurring in 2007. The mall is owned and operated by The Macerich Company (Macerich), which purchased the subject for $506.7 million in 2013, contributing $181.7 million of cash equity. The eight-year, fixed-rate loan matures in February 2021, and as of September 2020 had amortized by 16.0% with a balance of $272.6 million. In May 2020, as a result of the ongoing coronavirus pandemic, the borrower requested that the loan be transferred to special servicing to inquire about a potential forbearance; however, on June 15, 2020, the borrower rescinded its request and the loan was returned to the master servicer.

In addition to the two-story, super-regional mall, the collateral also includes several multitenant and single-tenant outparcel buildings including a Walmart, BJ’s Wholesale Club, Best Buy, Michaels, Raymour & Flanigan, PetSmart, Advantage Toyota, South Shore Hyundai, and several restaurants. Major noncollateral retailers at an additional multitenant outparcel building include Dick’s Sporting Goods, Aldi, HomeGoods, and Ulta. The mall itself is anchored by traditional department stores such as Macy’s (15.7% of the net rentable area (NRA); 1.2% of base rent), Macy’s Men’s and Furniture (7.3% of the NRA; 1.0% of base rent), and Sears (8.5% of the NRA; 0.3% of base rent) with junior anchors including H&M, Forever 21, and Old Navy. The property, similar to other malls throughout the country, has been negatively affected by recent national retailer closures including JCPenney (5.7% of the NRA; 3.2% of base rent), Century 21 (4.2% of the NRA; 4.7% of base rent), Modell’s Sports (1.8% of the NRA; 1.4% of base rent), and Kohl’s (6.8% of the NRA; 4.0% of base rent), which closed in April 2019 but continues to pay rent through its 2031 lease expiration. JCPenney closed in summer 2020, and according to the borrower, it is finalizing plans to backfill the space with multiple tenants including an international retailer that is expected to assume the majority of the space. The servicer did not provide further information on potential lease terms or a move-in date.

As of May 2020, the collateral was reported to be 87.2% physically occupied; however, given the recent closures, occupancy has likely declined with DBRS Morningstar estimating the current occupancy rate to be near 75.0%. The remaining mall anchors have not been listed on any Macy’s or Sears store closure lists to date, with Macy’s, Macy’s Men’s and Furniture, and Sears leases expiring in August 2026, July 2024, and October 2023, respectively. Upcoming rollover for the remaining junior anchors and outparcel tenants is limited to Best Buy and PetSmart, which have lease expirations in Q1 2022. Walmart and the two auto dealerships operate on ground leases, which expire in August 2026 and 2042, respectively, with Walmart maintaining two six-year extension options on its ground lease.

DBRS Morningstar has not received an update regarding tenant rent collections or sales figures for the collateral since the coronavirus pandemic began; however, according to YE2019 sales figures, tenant sales were relatively stable, although in-line sales generally decreased year-over-year (YOY) across different retail groups. In the report provided by the sponsor, apparel and accessories tenants reported sales of $418 psf (-6.8% YOY), shoe retailers reported sales of $610 psf (-5.5% YOY), restaurant reported sales of $599 psf (-0.1% YOY), food court tenants reported sales of $1,686 psf (2.9% YOY), and general retail tenants reported sales of $755 psf (-3.3% YOY). Furthermore, stores occupying greater than 10,000 sf, which includes collateral outparcel tenants reported sales of $563 psf (-1.3% YOY), Macy’s reported sales of $194 psf (12.0% YOY), Macy’s Men’s and Furniture reported sales of $148 psf (2.8% YOY), and Sears reported sales of $241 psf which were flat YOY.

According to the trailing 12 months ending March 31, 2020 reporting, the loan had a debt service coverage ratio of 1.82 times (x), down slightly from the YE2019 figure of 1.85x and above the YE2018 figure of 1.71x. Although the loan has continued to exhibit stable performance throughout the term, 2020 performance is expected to decline given the recent increase in vacancy combined with the ongoing significant negative impacts of the pandemic. Declining performance is potentially problematic given the loan’s upcoming maturity in February 2021. The loan remains current, and according to the servicer, the borrower has made no further requests or inquiries regarding relief to date. DBRS Morningstar believes the sponsor is invested in the collateral and provides valuable experience; however, given the current state of the economy and the ever-evolving retail landscape, it may be difficult for Macerich to secure take-out financing at maturity. Macerich owns three additional retail properties within the larger trade area including Kings Plaza Shopping Center in Brooklyn, Queens Center in Elmhurst, and The Shops at Atlas Park in Glendale, which are all facing similar pressures as the subject.

DBRS Morningstar derived the NCF using the latest reported servicer NCF with an adjustment, considering ongoing collateral performance including tenant movement and sales performance. The resulting NCF figure was $30.9 million and DBRS Morningstar applied a cap rate of 8.0%, which resulted in a pre-coronavirus DBRS Morningstar Value of $386.7 million, a variance of -24.8% from the appraised value of $514.0 million at issuance. The pre-coronavirus DBRS Morningstar Value implies an LTV of 70.5% compared with the LTV of 53.0% on the appraised value at issuance.

The cap rate DBRS Morningstar applied is at the middle end of the range of DBRS Morningstar Cap Rate Ranges for retail properties, reflecting the suburban location and market position of the asset on Long Island.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 3.0% to account for property quality and market fundamentals.

CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher NCF declines, resulting in stressed collateral value declines consistent with the projections in the “Global Macroeconomic Scenarios: September Update” (https://www.dbrsmorningstar.com/research/366542) to estimate the impact of coronavirus-related changes in asset performance on a tranche-by-tranche basis for the subject transaction. The scenarios included deducting cash flow for bankrupt retailers and/or increased vacancy expected at the asset to arrive at a coronavirus DBRS Morningstar Value under the moderate scenario, a 15.0% reduction from the pre-coronavirus DBRS Morningstar Value. Because of the more permanent value impairment resulting from the lost tenancy revenue stream, DBRS Morningstar’s analysis considered this value when assigning ratings.

Under the moderate scenario, the cumulative rated debt was insulated from loss.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class X-A is an interest-only (IO) certificate that references 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2020) and North American CMBS Surveillance Methodology (March 6, 2020), which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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