DBRS Morningstar Confirms Ratings of LCCM 2013-GCP Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2013-GCP issued by LCCM 2013-GCP Mortgage Trust as follows:

-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class XA at AAA (sf)
-- Class B at AA (high) (sf)
-- Class XB at A (sf)
-- Class C at A (sf)
-- Class D at A (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The underlying loan is a first mortgage on Grand Central Plaza, a Class A office property in the Grand Central submarket of Midtown Manhattan, New York, between 40th and 41st Streets. The 39-story property totals approximately 1.0 million square feet (sf), including ground-floor retail spaces totaling 37,276 sf. Built in 1974, the property was last renovated in 1998, with several other capital and tenant improvement projects undertaken since.

The trust consists of a $275.0 million mortgage loan with a 15-year term, with a partial interest-only (IO) period for seven years. The loan began amortizing with the March 2020 remittance and has a maturity scheduled in February 2028. There is also additional subordinate debt in the form of a $50 million mezzanine loan, which is held outside the trust. Total loan proceeds of $325.0 million were used to refinance existing debt and return $65.3 million of equity to the borrower. Based on the issuance appraisal of $630.0 million, the borrower had $310.0 million of implied equity remaining in the deal. The sponsor, Charles S. Cohen, is the president and chief executive officer of Cohen Brothers Realty Corporation (CBRC), and has more than 50 years of real estate experience. His company, a private real estate development and management firm, reportedly has real estate holdings of more than 12 million sf, including multiple Class A office towers in Midtown Manhattan.

The property’s largest tenant, Interpublic Group of Companies, Inc. (IPG), represents 44.8% of the net rentable area (NRA) with a lease expiration in May 2034. As of May 2020, the servicer confirmed that the tenant signed a 15-year lease renewal in November 2019 for its entire space, which extended the lease expiration to May 2034 from its original lease expiration in September 2021. The tenant has been at the subject since 2000 and is paying a base rental rate of $58.50 psf through to September 2021, followed by a $2.50 psf increase every two and a half years until the extended lease expiration in March 2034. DBRS Morningstar also notes that IPG has historically shown commitment to the property, with the company funding a $40 million renovation of its space at issuance. In general, tenant rollover risk is generally minimal for the remainder of the loan term with notable tenants Third Avenue Holdings (5.2% of the NRA) and J. Frank Associates (4.0% of the NRA) having lease expirations in August 2022 and December 2023, respectively.

According to the December 2020 rent roll, the property had an occupancy rate of 93.4% and an average rental rate of $55.99 psf, and demonstrated potential for cash flow upside as several tenants are paying below-market rents. As of Q1 2021 Reis data, comparable office properties within the Grand Central submarket reported an average rental rate of $62.57 psf and a vacancy rate of 9.5%. However, these figures have changed since Q1 2020 when Reis reported figures of $66.77 psf and 7.7%. While Interpublic accounts for a large portion of the below-market rents, the renewal terms cited by the servicer will only bring its lease to roughly current market levels by loan maturity. As of YE2020, the servicer reported a debt service coverage ratio of 1.63 times.

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 XA and XB are 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 methodology is the North American CMBS Surveillance Methodology (March 26, 2021), 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 [email protected].

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.

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

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