DBRS Morningstar Changes Trends on Three Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7 to Negative from Stable

DBRS, Inc. (DBRS Morningstar) confirmed the classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C7 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 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 (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)

The trends for Classes C, X-B, and PST were changed to Negative from Stable. Classes A-3, A-4, A-AB, A-S, B, and X-A have Stable trends. Classes D, E, F, and G do not carry trends given their respective ratings.

The Negative trends are driven by increased maturity risk for select loans of concern, which are described below. The rating confirmations reflect sufficient credit support relative to DBRS Morningstar’s overall recovery expectations for the pool’s remaining loans. There are 43 loans, representing 97.5% of the trust balance, scheduled to mature in the next 12 months. DBRS Morningstar’s ratings reflect ongoing concerns with adverse selection as the majority of performing loans, which have a weighted-average debt service coverage ratio and debt yield of 9.7% and 1.87 times, respectively, will repay at maturity, leaving junior bonds exposed to those currently in special servicing or considered likely to default at maturity.

At issuance, the trust comprised 64 fixed-rate loans secured by 123 commercial properties with a trust balance of $1.39 billion. As of the February 2022 remittance, 50 loans secured by 61 commercial properties remain in the pool with a trust balance of $948.4 million, representing a 32.0% collateral reduction since issuance. Twelve loans, totaling 13.5% of the trust balance, are fully defeased. The pool is concentrated by loans secured by retail properties, which represents 46.0% of the trust balance, including four of the largest 10 loans. The two largest specially serviced loans, totaling 13.8% of the trust balance, are secured by distressed regional malls.

The Solomon Pond Mall loan (Prospectus ID#2; 9.4% of the trust balance) is secured by the fee-simple interest in a regional mall in Marlborough, Massachusetts, approximately 30 miles west of downtown Boston. The loan, sponsored by Simon Property Group (SPG), transferred to special servicing in May 2020 due to imminent monetary default and a receiver was appointed in September 2021. The subject lost its noncollateral Sears anchor in Q2 2021 and property’s physical occupancy has declined to 69% as of September 2021 from 89% at YE2019 and leases representing 15% of the net rentable area (NRA) are considered temporary tenants. In total, leases representing 42.4% of the NRA are scheduled to roll in the next year, including the largest collateral tenant Regal Cinemas (16.8% of the NRA). The special servicer is dual-tracking various workout strategies while executing a stabilization plan. Should the special servicer foreclose on the property, which was recently deemed by SPG to be a noncore asset, DBRS Morningstar anticipates the full loan amount will not be recovered.

The Valley West Mall loan (Prospectus ID#7; 4.3% of the trust balance) is secured by a regional mall in West Des Moines, Iowa, and is owned by Watson Investments (Watson), which originally developed the mall in 1975. The collateral includes the in-line space and all three anchor pads. The loan transferred to special servicing in August 2019 although loan payments remain current. According to a February 2021 news article in the Des Moines Register, the property was being included in a $278 million proposed redevelopment plan that was reported to include an equity contribution of $262 million from Watson and a $30 million grant from the state through the Iowa Reinvestment Act. The special servicer noted the redevelopment plan with the City of West Des Moines has stalled and the borrower continues to seek additional capital for the project. The special servicer is considering the appointment of a receiver in the near term. The project, as well as the loan’s refinance prospect, is considered highly speculative and DBRS Morningstar anticipates significant losses to the loan should the special servicer foreclose on the asset.

With this review, DBRS Morningstar removed the shadow-rating treatment for the Sunvalley Shopping Center Fee loan (Prospectus ID#17; 2.0% of the trust balance). The loan is secured by the leased-fee interest in a 1.4 million square foot super-regional mall in Concord, California. The shadow-rating is no longer warranted given the declining cash flows, lower sales figures, and generally poor anchor tenant mix of the underlying improvements. DBRS Morningstar also rates the mortgage loan securing the leasehold interests, which was downgraded in August 2021. Please see the August 23, 2021, press release for reference: https://www.dbrsmorningstar.com/research/383334.

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 and X-B 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#2 – Solomon Pond Mall (9.4% of the pool)
-- Prospectus ID#7 – Valley West Mall (4.3% of the pool)
-- Prospectus ID#19 – 494 Broadway (2.0% of the pool)
-- Prospectus ID#20 – Riverside Market (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 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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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