DBRS Morningstar Upgrades One Class, Downgrades One Class, and Confirms Seven Classes of COMM 2013-CCRE6 Mortgage Trust

DBRS Limited (DBRS Morningstar) upgraded the rating on one class of the Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE6 issued by COMM 2013-CCRE6 Mortgage Trust as follows:

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

DBRS Morningstar also downgraded the rating on the following class:

-- Class F to C (sf) from CCC (sf)

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

-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class PEZ at AA (sf)

The trend on all classes are Stable with the exception of Class F, which has a rating that does not carry a trend. DBRS Morningstar discontinued the rating on Class A-4 as the bond fully repaid with the January 2023 remittance.

The rating confirmations and upgrade of Class B reflect the increased credit support provided to the bonds as 21 loans have repaid from the trust since DBRS Morningstar’s last rating action, representing principal paydown of $346.6 million. As the pool continues to wind down, with all remaining loans having a maturity date before the end of March 2023, DBRS Morningstar looked to a recovery analysis as part of the ratings rationale.

According to the January 2023 reporting, 12 of the original 48 loans remain in the trust with an aggregate principal balance of $395.7 million, representing collateral reduction of 73.5% since issuance. The pool is concentrated by property type, with loans backed by office, hotel, and retail properties representing 52.4%, 37.5%, and 9.2% of the current pool balance, respectively. Three loans, representing 25.0% of the pool are on the servicer’s watchlist for declines in occupancy, the debt service coverage ratio (DSCR), and/or failure to submit updated financial statements, and three loans, representing 65.1% of the pool, are in special servicing.

The rating downgrade of the lower-rated Class F reflects an increase in DBRS Morningstar’s loss expectations for loans in special servicing, most notably The Avenues (Prospectus ID#3; 27.8% of the pool) and Embassy Suites Lubbock (Prospectus ID#18; 4.4% of the pool). As part of the analysis for this review, DBRS Morningstar considered hypothetical liquidation scenarios for both of these loans, resulting in an implied loss of nearly $49 million, indicating that Class F was exposed to loss upon resolution.

The Avenues loan 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 include 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 collateral’s occupancy rate, which was reported at 63.4% as of June 2022, was marginally higher than the YE2021 rate of 60.1% but well below the issuance rate of 91.3%. Forever 21’s lease expired at the end of January 2023 and the servicer has not confirmed if the tenant intends to extend its lease. 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).

Occupancy and cashflows have consistently declined since issuance with the YE2021 net cash flow (NCF) 30.3% lower that the issuance NCF. The most recent full-year DSCR was 2.76 times (x) as of YE2021, significantly lower than 4.02x at issuance. Occupancy and cash flow declines, 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, Simon recategorized the subject mall as one of its “other” assets in its financial reporting, suggesting it may not remain fully committed to the property. DBRS Morningstar applied a 65.0% haircut to the property’s December 2012 appraisal value, resulting in a loss severity of nearly 30%, or $32 million.

Embassy Suites Lubbock 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 Hilton is not expected to renew it, 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 January 2023 remittance of $23.6 million. DBRS Morningstar, however, expects the as-is value could be even lower, given the expectation that the property will lose its Hilton flag next year. As such, DBRS Morningstar applied a haircut to the 2021 appraisal in the liquidation scenario for this loan to arrive at a projected loss amount of nearly $17.0 million, representing a loss severity in excess of 95.0%.

The largest loan in special servicing, Federal Center Plaza (Prospectus ID#1; 32.9% of the pool) is secured by the borrower’s fee-simple interest in two adjoining eight-story office buildings, 400 C and 500 C Street SW, totaling 725,317 sf, as well as a 57.1% interest in a three-level, connected, subgrade 912-space parking garage (521 owned stalls) in Washington, D.C. At issuance, The General Services Administration (GSA) leased more than 93.0% of the property on behalf of multiple federal agencies, including Federal Emergency Management Agency (FEMA). The building was designed as a build-to-suit for the agency in the early 1980s and has been continuously occupied by GSA tenant(s) ever since; however, the GSA has downsized its overall footprint in recent years, reducing occupancy at the property to 74.5% as of the September 2022 rent roll. The borrower executed an amendment for FEMA’s lease at 400 C Street (162,293 sf; 22.4% of NRA) and 500 C Street (303,546 sf; 41.9% of NRA) effectively extending the leases through to August 2027. In addition, a new lease (46,821 sf; 6.5% of NRA) was signed for another GSA tenant, USAID, which runs through to 2027. The borrower has stated that the GSA is potentially interested in signing a new 15- to 20-year lease, for a total of 600,000 sf of space, which would consolidate all of the existing leases across both properties into one roll-up. The servicer noted that a final decision will likely be made within the first quarter of 2023.

The loan transferred to the special servicer in December 2022 for imminent monetary default after the borrower delivered notice stating that it would not be able to repay the loan upon maturity in February 2023. The special servicer has confirmed that an extension is being executed for a yet to be determined length and rate. Despite the borrower’s inability to repay the loan at maturity, the loan benefits from low leverage with a going-in loan-to-value ratio of 42.1%. Moreover, the collateral’s desirable location close to Washington’s central business district, and the servicer’s update regarding a potential long term lease with the GSA for a significant portion of the total NRA could potentially be positive mitigating factors. The loan continues to cover debt obligations with a healthy DSCR of 2.13x for the trailing nine months ended September 30, 2022. d The loan was rated investment grade at issuance and, based on the mitigating factors described above, DBRS Morningstar confirms that the loan’s performance remains in line with the investment-grade shadow rating.

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 (May 17, 2022).

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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology (October 3, 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.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only a few loans remaining. In those cases, the DBRS Morningstar ratings are typically based on a recoverability analysis for the remaining loans.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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