DBRS Morningstar Downgrades Three Classes and Assigns Negative Trends to Five Classes of GSMS 2013-GCJ14

On April 16, 2021, DBRS Morningstar amended this press release to further clarify the analysis of the Mall St. Matthews loan.

DBRS Limited (DBRS Morningstar) downgraded three classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GCJ14 (the Certificates) issued by GS Mortgage Securities Trust 2013-GCJ14 as follows:

-- Class F to B (high) (sf) from BB (sf)
-- Class G to B (low) (sf) from B (sf)
-- Class X-C to B (sf) from B (high) (sf)

In addition, DBRS Morningstar confirmed the remaining classes as follows:

-- 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 X-A 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)

Classes G and X-C were removed from Under Review with Negative Implications, where they were placed on August 6, 2020. Classes D, E, F, G, and X-C have Negative trends. All other trends are Stable.

The rating downgrades and Negative trends are due to the increased risk of loss to the trust for four retail loans either in special servicing or on the DBRS Morningstar Hotlist. The specially serviced loans driving these rating actions are secured by regional mall properties that are exhibiting significantly increased risks from issuance and both were analyzed with liquidation scenarios for this review.

In general, the pool is concentrated with loans backed by retail and hotel property types, which represent 38.4% of the pool balance collectively. These property types have been the most immediately and significantly impacted by the effects of the pandemic and in the case of the two mall loans in special servicing, previous performance declines are either now exacerbated or being accelerated by the pandemic. According to the February 2021 remittance, 22 loans are on the servicer’s watchlist, representing 26.1% of the current pool balance. The two largest loans on the watchlist are secured by hotel properties in W Chicago – City Center (Prospectus ID #3, 7.5% of the pool), which recently went 30 days delinquent with the February 2021 remittance, and Hampton Inn LaGuardia (Prospectus ID #7, 3.3% of the pool), which is current but on the servicer’s watchlist for the trailing 12 months ending September 2020 debt service coverage ratio (DSCR) of 0.76 times (x). The servicer is monitoring these loans for various reasons, including a low DSCR or occupancy figure, tenant rollover risk, and/or pandemic-related forbearance requests.

There are two top 15 loans backed by retail properties on the servicer’s watchlist and on the DBRS Morningstar Hotlist in Willow Knolls Court (Prospectus ID #9, 2.2% of the pool) and Cobblestone Court (Prospectus ID #14, 1.9% of the pool). Both of these loans are being monitored for occupancy declines at the respective properties, which are located in tertiary markets and will likely be significantly impeded in efforts to backfill vacant space, particularly given the impact to retail leasing activity amid the pandemic.

As of the February 2021 remittance, 73 of the original 84 loans remain in the pool, with scheduled amortization resulting in collateral reduction of 13.1% since issuance. There are 12 loans, representing 12.0% of the current pool balance, which are fully defeased. Three loans, representing 5.8% of the current pool balance, are in special servicing, including the sixth largest-loan in the pool, Mall St. Matthews (Prospectus ID#6, 3.6% of the pool balance), which is secured by a regional mall in Louisville, Kentucky. The loan was transferred to special servicing in June 2020 after the loan failed to repay at the scheduled June 2020 maturity date. As of the February 2021 remittance, the loan is a nonperforming matured balloon and the servicer is discussing a potential workout and/or deed-in-lieu with the sponsor, an affiliate of Brookfield Property Partners (Brookfield).

The largest tenants at Mall St. Matthews are JCPenney, Dave & Buster’s, and Cinemark USA, Inc. (Cinemark), with JCPenney reporting a lease expiry in August 2022. As of September 2020, the subject reported an occupancy of 93.6% and a DSCR of 1.82x, compared to the YE2019 occupancy of 93.8% and DSCR of 1.96x. Although the coverage remains generally in line with the issuance figures, the exposure to JCPenney and entertainment venues in Cinemark and Dave & Buster’s suggests increased risks from issuance and could be the reason Brookfield has floated the idea of a deed-in-lieu.

Brookfield owns a second mall located within close proximity to this mall, Oxmoor Center, which also backs a CMBS loan held in the MSC 2011-C11 transaction, rated by DBRS Morningstar. At issuance for the subject transaction, the two malls were noted to have complimentary tenancy and the proximity and shared ownership were not viewed as significant concerns; however, the landscape for regional malls has significantly shifted and operators are possibly less inclined to own multiple properties within close proximity and in a secondary market. Also noteworthy, Brookfield’s Chief Financial Officer, Bryan Davis, recently confirmed in the company’s Q4 2020 earnings call held on February 2, 2021, that the company is evaluating properties in its portfolio that back CMBS loans, with some properties expected to be transitioned to the servicers via deed-in-lieu or foreclosure actions. The servicer has not confirmed any official action to transfer title for Mall St. Matthews to the trust, but the servicer’s commentary does note a deed-in-lieu is being considered among the workout options. It is also noteworthy that the subject loan is severely delinquent, while the Oxmoor Center loan is current and no Coronavirus Disease (COVID-19) relief request has been processed by the servicer. Given these circumstances, the Mall St. Matthews loan was analyzed with a liquidation scenario for this review, resulting in a loss severity in excess of 20.0%.

The second-largest loan in special servicing is Indiana Mall (Prospectus ID#20, 1.3% of the pool), which is secured by a regional mall located in Indiana, Pennsylvania, approximately 60 miles northwest of the Pittsburgh CBD. This loan has been in special servicing since November 2018, following an occupancy decline to 35.0% with the loss of Bon-Ton and Kmart. Unsurprisingly, the initial appraisal obtained by the special servicer, dated December 2018, indicated an as-is value of $8.4 million. There was some leasing activity at the property with the signing of Harbor Freight Tools, bringing the December 2019 value up slightly, to $8.7 million, but the prospects for the servicer’s efforts to sell the property are significantly worse amid the pandemic, despite some relatively positive news in the last few years. As such, the loan was analyzed with a punitive liquidation scenario that resulted in a loss severity approaching 100% for this loan as part of this review.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings on Classes B, C, and PEZ as the quantitative results suggested a lower rating. The material deviations are warranted given the uncertain loan level event risk with the loans in special servicing, particularly Mall St. Matthews, which could result in additional losses to the trust, as well as loans on the servicer’s watchlist.

Classes X-A 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 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 the following loans in the transaction:

-- Prospectus ID#3 – W Chicago - City Center (7.5% of the pool)
-- Prospectus ID#6 – Mall St. Matthews (3.6% of the pool)
-- Prospectus ID#9 – Willow Knolls Court (2.2% of the pool)
-- Prospectus ID#14 – Cobblestone Court (1.9% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on 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 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 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@dbrsmorningstar.com.

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.

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

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