DBRS Morningstar Downgrades Ratings on Three Classes and Confirms Remaining Classes for GSMS 2013-GCJ14

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

-- Class E to BB (high) (sf) from BBB (low) (sf)
-- Class F to B (low) (sf) from B (high) (sf)
-- Class G to CCC (sf) from B (low) (sf)

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

-- 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)

DBRS Morningstar discontinued its rating on Class X-C as the lowest reference obligation, Class G, was downgraded to CCC (sf). The trends on Classes C and PEZ were changed to Negative from Stable. Negative trends were maintained for Classes D, E, and F. Class G now has a rating that does not carry a trend. All other classes have Stable trends.

DBRS Morningstar previously downgraded three classes and assigned Negative trends to five classes as part of the March 2021 rating actions. (For additional information, please see the press release dated March 3, 2021.) Those rating actions were largely driven by concerns surrounding retail loans in the pool that were showing performance declines that were expected to be sustained for the longer term. The rating downgrades and Negative trends with this review are due to further deterioration in the credit profile for some of those same loans, as well as increased risks for a large hotel loan, as further discussed below.

As of the January 2022 remittance, 71 of the original 84 loans remain in the pool, representing a collateral reduction of 22.4% since issuance. The pool benefits from defeasance collateral as 18 loans, representing 14.3% of the pool balance, are fully defeased. Sixteen loans are on the servicer’s watchlist and four loans are in special servicing, representing 29.0% and 13.6% of the pool, respectively. In general, the pool is concentrated with loans backed by retail and hotel property types, which represent 37.0% of the pool balance, collectively.

The largest specially serviced loan is W Chicago – City Center (Prospectus ID#3, 7.8% of the pool), which is secured by a full-service hotel in the West Loop submarket of Chicago. The loan is on the DBRS Morningstar Hotlist and was previously on the servicer’s watchlist because of performance declines that began prior to the onset of the Coronavirus Disease (COVID-19) pandemic. After the loan’s transfer to special servicing in March 2021 for payment default, a loan modification was executed that allowed for a conversion to interest-only payments through the remaining loan term of the loan, the repayment of outstanding amounts due using funds and maintained cash management through the August 2023 maturity. Based on the April 2021 appraisal, the property was valued at $73.6 million, which is a sharp decline from the issuance value of $167.0 million and suggests a loan-to-value ratio (LTV) of 103% based on the trust exposure as of January 2022. The sponsor appears committed to the loan and property and, while the loan modification is generally seen as a positive development in comparison with the alternative of foreclosure, the as-is value decline and high LTV are indicative of significantly increased risks for this loan, particularly given the challenges DBRS Morningstar believes the subject hotel will face in building revenue back to even pre-pandemic levels, when performance was consistently suppressed from issuance expectations.

The second-largest specially serviced loan is Mall St. Matthews (Prospectus ID#6, 3.6% of the pool), which is secured by a regional mall in Louisville, Kentucky, and was transferred to special servicing in June 2020 after it failed to repay at its June 2020 maturity date. The loan was previously reported as nonperforming but is reporting current as of the January 2022 remittance. The special servicer reports a loan modification is expected to be finalized in the near term, but it is noteworthy that previous updates provided by the special servicer included the suggestion that the loan sponsor, an affiliate of Brookfield Property Partners (Brookfield) could have an interest in pursuing a deed-in-lieu of foreclosure. The August 2021 appraisal valued the property at $83.0 million, a sharp decline from the issuance value of $280.0 million, a somewhat surprising delta given the fact that the property has historically performed in line with issuance expectations. Most recently, the loan reported a debt service coverage ratio (DSCR) and occupancy rate as of the trailing nine month ended September 30, 2021, of 1.53 times (x) and 95.2%, respectively. In addition, sales as of the T-12 ended September 30, 2021, report provided by the servicer showed in-line sales (tenants less than 10,000 per square foot (psf)) of $462 psf, suggesting traffic at the property remains relatively healthy. Given the sponsor’s possibly tepid commitment to the property and the decline in the as-is value of the property, DBRS Morningstar assumed a liquidation scenario in the analysis for this loan, resulting in a loss severity in excess of 50%.

Another loan in special servicing is Indiana Mall (Prospectus ID#20, 1.3% of the pool), which is secured by a regional mall in Indiana, Pennsylvania. The loan is real estate owned and based on the October 2021 appraisal, the property was valued at $3.9 million, which is well below the outstanding loan balance of $12.3 million. With this review, DBRS Morningstar analyzed the loan with a liquidation scenario, resulting in a loss severity in excess of 100.0%.

Other loans of concern include Willow Knolls Court (Prospectus ID#9, 2.2% of the pool), which is secured by a retail property in Peoria, Illinois, and has been on the DBRS Morningstar Hotlist after losing Bulinrgton ahead of its 2019 lease expiry. The subject continues to report an occupancy level of around 70% since Burlington’s departure and depressed net cash flows, with the T-6 ended June 30, 2021, DSCR of 0.57x. Another DBRS Morningstar Hotlist loan is Cobblestone Court (Prospectus ID#14, 1.9% of pool), which is secured by a retail property in Victor, New York, located across from the Eastview Mall. The subject previously lost its Kmart anchor and was able to back-fill only about half of the space to Hobby Lobby in 2021. In addition, the property also recently lost its former second-largest tenant in Dick’s Sporting Goods, which relocated to the nearby Eastview Mall and has a lease at the subject that expires in January 2022. Given the ongoing concerns with these loans, DBRS Morningstar analyzed the loans with probability of default penalties to increase the expected losses in the analysis for this review. Additional details for both loans can be found on the DBRS Viewpoint platform.

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 assigned to Classes B, C, and PEZ, as the quantitative results suggested lower ratings. The material deviations are warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist, as discussed in this detailed commentary above.

Class X-A is an interest-only 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 the following loans in the transaction:

-- Prospectus ID#3 – W Chicago – City Center (7.8% 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. unless otherwise noted.

The principal methodology is 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

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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