DBRS Morningstar Confirms All Classes and Changes Trend to Negative on Three Classes of COMM 2013-CCRE10 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE10 (the Certificates) issued by COMM 2013-CCRE10 Mortgage Trust as follows:

-- Class A-3 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class A-SB 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 (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

The trends on all classes are Stable, with the exception of the trends on Classes D, E, and F, which were changed to Negative.

The Negative trends are reflective of DBRS Morningstar’s concerns surrounding the one loan in special servicing, which represents 2.8% of the pool, and the two largest of the 13 loans on the servicer’s watchlist. Although the outlook for the loan in special servicing is somewhat positive, given a recent appraisal showing an improvement in value from issuance, and the two largest watchlisted loans remain current despite cash flow declines at the respective collateral properties, even relatively moderate increases in risk for those loans are significant for this pool. This is because the transaction structure includes three relatively small balance classes at the bottom of the capital stack, with the unrated Class G previously reduced by approximately half of the issuance balance with the liquidation of Strata Estate Suites (Prospectus ID #15), which resulted in a $17.2 million loss applied with the October 2018 remittance.

In total, the loans on the servicer’s watchlist represent 19.8% of the pool. These loans are being monitored for various reasons, including low debt service coverage ratio (DSCR), declining occupancy, failure to submit financials, and deferred maintenance. As of the February 2021 remittance, the trust balance has been reduced by 22.2% to $786.5 million from the initial $1.0 billion, with 47 of the original 59 loans remaining in the pool. The transaction is concentrated by property type as 10 loans, representing 31.8% of the pool, are secured by office-type properties and another 10 loans, representing 18.0% of the pool, are secured by retail properties or mixed use portfolios that are primarily composed of retail assets.

The specially serviced loan, Hotel Murano (Prospectus ID#13; 2.8% of the pool), is secured by a 319-room full-service hotel property in Tacoma, Washington, which has been closed since March 2020 due to the Coronavirus Disease (COVID-19) pandemic. The loan transferred to special servicing in June 2020 for imminent monetary default and, as of the February 2021 remittance, was most recently paid in April 2020. The special servicer is working with the sponsor to finalize the terms of a forbearance agreement, but the extended delinquency and the delay in negotiations to resolve the outstanding defaults is worrisome. Mitigating to a certain extent the increased risks from issuance is the August 2020 appraisal obtained by the special servicer that showed an as-is value of $39.7 million, an increase over the issuance figure of $37.5 million. While the value improvement is somewhat unique for hotel properties in the coronavirus pandemic environment, the historically strong performance of the subject hotel, which reported revenues of $22.4 million for YE2019— an improvement of 135.0% over the issuer’s estimated figure—is a contributing factor.

Based on a hypothetical liquidation scenario analyzed by DBRS Morningstar, a property sale would have to occur at a nearly 40% discount to the August 2020 appraisal for the trust to realize a loss on this loan. However, given the unknown outcome of the final workout strategy and the severely delinquent status for the loan, a probability of default (PD) penalty was applied in the analysis for this review, significantly increasing the expected loss.

The largest loan on the servicer’s watchlist is SpringHill Suites/Fairfield Inn & Suites (Prospectus ID#7; 5.4% of the pool), which is secured by two connected limited-service hotels situated in downtown Louisville, Kentucky. The collateral comprises 333 total keys, including a 19-key SpringHill Suites and a 135-key Fairfield Inn & Suites. The loan was added to the servicer’s watchlist in November 2020 due to a low DSCR. As of the trailing twelve months ended June 2020, the DSCR was reported at 0.87 times (x), down significantly from the YE2019 and YE2018 DSCRs of 2.01x and 1.59x, respectively. The cash flow declines are a direct result of the coronavirus pandemic and, as of the February 2021 remittance, the loan remains current and no relief request has been submitted by the sponsor to date.

The second-largest loan on the servicer’s watchlist is General Motors Innovation Center (Prospectus ID#8; 3.9% of the pool), secured by a 320,000 square foot Class A office property located in Austin, Texas. General Motors (GM), the former single tenant, vacated the property following its August 2020 lease expiry and the space has yet to be backfilled. GM’s plans to vacate the property were known at least 12 months prior to the lease expiry, meaning the sponsor has been marketing the space for at least 18 months, with no leasing traction thus far. The loan remains current and a cash flow sweep that was to be required as part of the GM lease expiry date was waived in lieu of a letter of credit, which was provided by the sponsor and showed an amount of $7.6 million as of the February 2021 loan level reserve report. Given the extended status as fully vacant and the likelihood that leasing activity for large blocks of space will continue to be tepid during the pandemic, the loan was analyzed with a PD penalty to increase the expected loss for this review.

DBRS Morningstar confirmed that the performance of One Wilshire (Prospectus ID #1; 10.4% of the pool) remains consistent with investment-grade loan characteristics.

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.

Classes X-A 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#6 – Prince Kuhio Plaza (4.9% of the pool)
-- Prospectus ID#7 – Springhill Suites/Fairfield Inn & Suites - Louisville (4.3% of the pool)
-- Prospectus ID#13 – Hotel Murano (2.8% 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 the 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.

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 info@dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577