DBRS Morningstar Downgrades One Class of COMM 2013-GAM Mortgage Trust

DBRS Limited (DBRS Morningstar) downgraded the rating on the following class of Commercial Mortgage Pass-Through Certificates issued by COMM 2013-GAM Mortgage Trust:

-- Class B to AA (sf) from AA (high) (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

In addition, DBRS Morningstar changed the trends on Classes B, C, D, E, and F to Stable from Negative. All trends are now Stable.

DBRS Morningstar previously assigned the Class B certificate, as well as the others as listed above, a Negative trend. As such, the downgrade for Class B with this review, reflects the sustained performance decline of the collateral, Green Acres Mall, which began in 2019 when occupancy and cash flow started to trend lower as a result of tenant departures. DBRS Morningstar previously downgraded Classes D, E, and F in July 2021 to reflect the increased credit risks related to the borrower’s inability to obtain takeout financing prior to the loan’s February 2021 scheduled maturity date and an updated appraisal that indicated a 30.5% value decline from issuance. According to the most recent reporting, occupancy and cash flow remain stressed as the borrower has been unable to reverse the downward performance trends to date. DBRS Morningstar’s analysis suggests the overall outlook remains stable, for the reasons as further described below, supporting the rating confirmations and Stable trends with this review.

The loan is secured by the borrower’s fee simple and leasehold interest in Green Acres Mall, a 1.8 million square foot (sf) super-regional mall located in Valley Stream, New York. The mall was originally built in 1956 and has been expanded and renovated many times, with the last major expansion occurring in 2007. The mall is owned and operated by The Macerich Company (Macerich), which purchased the subject for $506.7 million in 2013, contributing $181.7 million of cash equity. The eight-year, fixed-rate loan matured in February 2021; however, both 12-month extension options have been exercised by the borrower and the loan is now scheduled to mature in February 2023. As of the June 2022 remittance, the loan has amortized down by 25.4% since issuance, with a balance of $241.9 million.

The loan has remained current throughout multiple transfers to special servicing, namely in May 2020 and December 2020 when the loan transferred to the special servicer ahead of the scheduled 2021 maturity date. The mall has lost several large tenants since 2019, including anchor tenants Kohl’s (formerly 6.5% of net rentable area (NRA)), JCPenney (formerly 5.3% of NRA), and a number of in-line tenants. The December 2021 rent roll indicated an occupancy rate of 72.3%, slightly below the prior year’s occupancy rate of 76.9%. Although Sears (formerly 8.0% of NRA), the third-largest tenant, closed its store in April 2021, the retailer continues to pay rent through its lease expiration in October 2023.

The servicer indicated that the 97,213-sf former JCPenney space was expected to be redeveloped and fully leased to a collection of tenants including Primark, though the tenant is not expected to take possession of its space until September 2022 at the earliest. Additionally, it has been reported that Shoppers World had agreed to backfill the 72,266-sf former Century 21 space, though a potential move-in date and lease terms have not been provided. The three largest tenants currently at the property include Macy’s (14.7% of NRA; expiring August 2026), Walmart (9.6% of NRA; expiring August 2028), and Macy’s Men’s & Furniture (6.8% of NRA; expiring July 2024).

Property performance has been trending downward since issuance, with YE2021 net cash flow 10.9% below the 2013 figure at closing. Likewise, the loan’s debt service coverage ratio (DSCR) has fallen to 1.52 times (x) from 1.71x over the same period. An August 2020 appraisal estimated the as-is value of the property at $357.0 million, with the appraiser using an 8.5% cap rate. Despite the substantial decline in value from issuance, when the property was estimated to be worth $514.0 million, the current as-is value remains comfortably in excess of the outstanding loan balance of $241.9 million. Moreover, at the time of the last rating action in July 2021, DBRS Morningstar applied an additional stress in its analysis by applying a cap rate of 8.5% to the downward adjusted net cash flow of $24.7 million, resulting in a DBRS Morningstar value of $291.2 million, a variance of -18.4% from the August 2020 appraised value. The DBRS Morningstar value implies a loan-to-value (LTV) ratio of 88.4% compared with the LTV of 72.1% based on the August 2020 appraised value. Macerich appears committed to the collateral and the trust loan and should be well-positioned to continue efforts to stabilize the mall’s occupancy rate and obtain a replacement loan or an additional maturity extension in the event more time is needed.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 loan 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.

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].

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