DBRS Morningstar Confirms All Classes of Irvine Core Office Trust 2013-IRV

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2013-IRV (the Certificates) issued by Irvine Core Office Trust 2013-IRV as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since the last review. The Certificates are supported by the payment streams from 10 uncrossed, amortizing, fixed-rate mortgage loans secured by the fee interest in 10 Class A commercial office properties in Southern California. The loans are nonrecourse and each is evidenced by a single promissory note that is secured by the respective fee interest in the related property. As of the June 2021 remittance, the transaction has an aggregate balance of $717.8 million, representing a collateral reduction of 17.9% because of scheduled loan amortization. The loans had an original principal balance of $874.95 million and have a scheduled maturity date of May 2023.

The collateral pool consists of 10 office properties (17 buildings combined) in the West Los Angeles and Orange County submarkets. The properties were constructed between 1972 and 1991, then renovated between 2003 and 2012, with an aggregate square footage of roughly 4.85 million. As of the 2020 and 2021 servicer’s site inspection reports for the collateral properties, all were found to be in above average condition. On a consolidated basis, the properties reported an occupancy rate of 90.3% at an average rental rate of $46.39 per square foot (psf), based on the provided March 2021 rent rolls. Occupancy at the subject has remained stable, with the June 2019 and June 2018 occupancy rates being 92.0% and 91.4%, respectively. The largest tenants on a portfolio basis are Disney (7.4% of net rentable area (NRA); lease expiry June 2026) and 20th Century Fox (3.2% of NRA; lease expiry June 2026) with the remaining tenants being quite granular and making up no more than 1.7% of total NRA.

Despite the strong historical occupancy figures, the portfolio has significant upcoming rollover risk at 25.5% of total NRA within the next 12 months. However, the sponsor’s leasing strategy is focused on three- to five-year lease terms in an effort to increase its rental revenue as leases roll. At issuance, the issuer reported a net cash flow of $107.7 million, which has increased to $124.4 million as of the trailing twelve months (T-12) June 2020, evidence of the sponsor’s past success with its leasing strategy.

The sponsor is Irvine Core Office LLC, an affiliate of the Irvine Company, LLC (Irvine). The borrowers are single-purpose, bankruptcy-remote entities directly owned by the sponsor and indirectly owned by Irvine. Irvine was established in 1864 and is a diversified, privately held real estate investment company and master planner known for its stewardship and master planning of the Irvine Ranch in Orange County, California. Irvine was responsible for master planning the City of Irvine, incorporated in 1971. Irvine has also developed a critical mass in Orange County with a combined portfolio of approximately 23.9 million sf of office space.

As of the most recent consolidated financial reporting, the portfolio reported a T-12 June 2020 debt service coverage ratio (DSCR) of 2.75 times (x) compared with the T-12 June 2019 DSCR and T-12 June 2018 DSCR of 2.67x and 2.38x, respectively. Furthermore, the transaction has a very moderate loan-to-value ratio of 45.3%, based on the current outstanding loan balance as of the June 2021 remittance and the DBRS Morningstar derived value of $1.58 billion.

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.

Class X-A is an interest-only (IO) certificate 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. 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 [email protected].

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