DBRS Morningstar Downgrades Three Classes of COMM 2013-CCRE6 Mortgage Trust, Confirms Remaining Classes

DBRS, Inc. (DBRS Morningstar) downgraded three classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE6 issued by COMM 2013-CCRE6 Mortgage Trust (the Issuer) as follows:

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

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

-- Class A-SB 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 X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (high) (sf)
-- Class C at AA (sf)
-- Class PEZ at AA (sf)

Classes E and F continue to carry Negative trends, and DBRS Morningstar changed the trend on Class D to Negative from Stable. All other trends are Stable. The downgrades and Negative trends largely reflect elevated concerns regarding the second-largest loan in the pool, The Avenues (Prospectus ID#3, 12.5% of the pool).

According to the March 2022 remittance, 38 of the original 48 loans remain in the trust with an aggregate balance of $878.1 million, representing a collateral reduction of 41.2% since issuance. In addition to the significant paydown since the transaction’s closing, the pool also benefits from nine loans, representing 11.1% of the pool, that are fully defeased. Ten loans, representing 44.8% of the pool, are on the servicer’s watchlist, including six loans in the top 15, and one loan, representing 2.1% of the pool, is in special servicing. Loans backed by retail properties account for the greatest concentration by property type with 32.6% of the pool, followed by office properties representing 24.5% of the pool and hotel properties with 15.6% of the pool. All 38 of the remaining loans in the pool have scheduled maturity dates between now and March 2023.

The Avenues loan is on the servicer’s watchlist and is secured by a portion of a 1.1 million-square-foot (sf) (599,030 sf of which is collateral for the subject loan) regional mall in Jacksonville, Florida. The mall includes three noncollateral anchors in Dillard’s, Belk, and JCPenney. The collateral anchors are a larger-than-average Forever 21, which occupies 116,298 sf (representing 19.4% of the collateral net rentable area (NRA)), and a vacant former Sears box totaling 121,208 sf (representing 20.2% of the NRA), which closed in 2019 and has not been backfilled to date. The servicer is monitoring the loan for the low collateral occupancy rate, which was reported at 59.7% as of September 2021, compared with 58.0% at YE2020, but still well below the 91.3% at issuance. Forever 21’s lease expires in 2023, as does the lease of the second-largest collateral tenant, H&M, which represents 3.1% of the collateral NRA. The subject is significantly inferior to the favored mall in the area, St. Johns Town Center, which also secures commercial mortgage-backed securities debt and is owned by one of the subject loan sponsors, Simon Property Group (Simon). A DBRS Morningstar analyst visited both malls in September 2021 and noted that the subject mall was showing signs of disrepair on the exterior, particularly in the parking lot and on the facade of the closed Sears box. In addition, it was noted that the Forever 21 store was obviously far too large for the amount of merchandise on display, with the former department store box sparsely inventoried on a square foot basis as compared with the chain’s typically much smaller locations. Overall, the mall interiors were well maintained and there were a fair number of shoppers in some parts of the mall during the Saturday afternoon visit, but other areas were largely vacant. There was also a notable concentration of local and regional tenants taking up in-line spaces in several areas of the mall.

Even before the occupancy slides began in the second half of the loan term, property cash flows were declining, with year-over-year drops reported for every year since 2015 and the most recent debt service coverage ratio (DSCR) for a full year was reported at 2.95 times (x) at YE2020. The most recently reported DSCR was 2.59x at Q3 2021, suggesting these trends have continued amid the rebound from the Coronavirus Disease (COVID-19) pandemic. The loan was conservatively structured, with the Issuer’s DSCR at 4.02x and the 2013 issuance appraised value suggesting a loan-to-value (LTV) of 45.1% for the fully interest-only (IO) loan. However, DBRS Morningstar notes the occupancy and cash flow declines, as well as a diminished investor appetite for this property type and the subject mall’s status as the inferior mall within the Jacksonville market, all suggest that a sharp value decline from issuance is likely. In addition, beginning in 2019 Simon recategorized the subject mall as one of its “Other” assets in the company’s financial reporting, a move that has historically signaled the possibility that Simon could walk away. At issuance, the loan sponsorship also included affiliates of CBL & Associates (CBL) and Teachers’ Retirement System of the State of Illinois; however, it appears that CBL no longer has an interest in the property based on the company’s most recent financial filings. Based on the likelihood of a significant value decline, this loan was liquidated from the pool in the analysis for this review, with the projected loss severity approaching 25%, or $24.6 million.

The largest specially serviced loan is the Embassy Suites Lubbock (Prospectus ID#18, 2.0% of the pool) and is secured by the borrower’s fee-simple interest in a 156-key full-service hotel in Lubbock, Texas. Cash flow declines began with the energy market downturn in 2015, and the loan ultimately transferred to special servicing in 2020. The current franchise agreement with Hilton expires at YE2023 and is not expected to be renewed by Hilton, according to the special servicer. The receiver attempted an auction sale of the property in December 2021, but the highest bid failed to meet the receiver’s reserve price. The August 2021 appraisal estimated an as-is value of $19.9 million, down considerably from the issuance appraised value of $31.0 million, and below the trust exposure as of the March 2022 remittance of $21.3 million. DBRS Morningstar expects the as-is value could be even lower given the expectation the property will lose its Hilton flag next year, so DBRS Morningstar applied a haircut to the 2021 appraisal in the liquidation scenario for this loan to arrive at a projected loss amount of $15.9 million, which represents a loss severity approaching 90%.

At issuance, DBRS Morningstar shadow-rated the Federal Center Plaza loan (Prospectus ID#1, 14.8% of the pool) investment grade based on the collateral property’s desirable location, significant tenant investment, below-market rents, and added value of the property’s redevelopment parcel. The loan is on the servicer’s watchlist for scheduled lease rollover and occupancy declines from issuance; however, DBRS Morningstar considered some mitigating factors as part of the confirmation that the loan’s performance remains in line with the investment-grade shadow rating. The mitigating factors included the low LTV at issuance of 42.1%, the desirable location, and the servicer’s update which suggested that a long-term lease with the General Services Administration for a significant portion of the total NRA is being negotiated.

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 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#3 – The Avenues (12.5% of the pool)
-- Prospectus ID#18 – Embassy Suites Lubbock (2.0% of the pool)

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 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 4, 2022), 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 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are 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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