DBRS Morningstar Confirms Ratings on COMM 2013-300P Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of COMM 2013-300P Mortgage Trust, Commercial Mortgage Pass-Through Certificates issued by COMM 2013-300P Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A1P at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)

All trends are Stable.

The rating confirmations reflect the transaction’s overall stable performance since the last review. There are some noteworthy developments in occupancy declines from issuance, as further described below. But mitigating factors include the strong sponsorship, desirable location of the property, and low loan-to-value ratio (LTV) implied by both the issuance appraised value and the DBRS Morningstar value derived when the ratings were assigned in 2020. The collateral is a first mortgage loan secured by the fee-simple interest in 300 Park Avenue, a Class A, LEED Silver certified office tower in Midtown Manhattan on the west side of Park Avenue between 49th Street and 50th Street. Constructed in 1954, the property consists of 24 office levels, a ground floor with retail, and a subterranean level with storage space. The loan has a 10-year term and is fully interest only (IO) throughout.

The loan sponsor is Prime Plus Investments, LLC, which is indirectly owned by several entities including Tishman Speyer Crown Equities 2007 LLC (Tishman Speyer); the National Pension Service acting for the National Pension Fund of the Republic of Korea; the Government of Singapore Investment Corporation (Realty) Pte Ltd.; and Andra AP-fonden, the Second Swedish National Pension Fund (AP2) of the Kingdom of Sweden. Tishman Speyer also serves as the property manager.

The property’s largest tenant is the Colgate-Palmolive Company (Colgate), and the building is often referred to as the Colgate-Palmolive Building. At issuance, Colgate occupied 503,637 square feet (sf) of the building, representing 65.3% of the net rentable area (NRA) and approximately 77.9% of in-place annual rent. Colgate operates its corporate headquarters at the property and has been in tenancy since the original construction date. The company extended its lease in 2008 with an initial lease expiry in June 2023, which included one 10-year extension option and an additional five-year extension option.

In May 2019, Colgate exercised the 10-year renewal option and moved its lease expiry to 2033, but it only retained 241,657 sf at a reduced rental rate of $93 per sf (psf), compared with $126 psf at issuance. Colgate also returned 97,343 sf of its original space in May 2020, but it will continue to pay $140 psf for this space through the June 2023 expiry. At issuance, the property’s second-largest tenant was Greenhill & Company (Greenhill). It occupied 104,863 sf of the building, representing 13.6% of the NRA with a lease that expired in October 2020, at which time the tenant relocated to another building in Midtown Manhattan. As of June 2021, the borrower executed a lease with Madison International Realty Holdings, LLC, which occupies 25,485 sf, representing 3.3% of the NRA on a lease that expires in June 2033. Given these developments, DBRS Morningstar estimates the property’s physical occupancy rate is 78.87%. According to Reis’ Q4 2021 data, the Grand Central office submarket reported an overall vacancy rate of 10.7% with average asking rents of $75.50 psf and effective rents of $59.97 psf. Reis expects vacancy to remain unchanged at 10.7% by YE2022.

As of Q3 2021, the servicer reported an annualized net cash flow (NCF) of $27.4 million, an occupancy rate of 79%, and a debt service coverage ratio (DSCR) of 1.26 times (x), compared with the YE2020 DSCR of 1.49x. The NCF decline in 2021 was primarily driven by losses in base rental income. The Q3 2021 annualized NCF reflects a 59.1% decline when compared with the DBRS Morningstar NCF of $42.1 million when the ratings were assigned in April 2020. At that time, DBRS Morningstar considered Greenhill’s lease expiration and applied a negative qualitative adjustment for cash flow volatility to account for additional tenant rollover.

Despite the rollover concerns, which are elevated given the leasing hurdles resulting from the Coronavirus Disease (COVID-19) pandemic, the property does benefit from experienced sponsorship, a prime location along Park Avenue, a low LTV of 48.5%, and historical occupancy rates above 90.0% since issuance. Tishman Speyer previously announced plans to demolish and redevelop the property, but those plans were reportedly scrapped when Colgate extended its lease in 2019. It is unknown if those plans have since been revisited, but the sponsor’s significant experience with this property type and market should help its re-leasing efforts over the remainder of the loan term, albeit with market challenges because of the pandemic.

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 IO 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 this transaction.

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 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 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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