DBRS Morningstar Confirms Ratings on LCCM 2013-GCP Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2013-GCP issued by LCCM 2013-GCP Mortgage Trust as follows:

-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class XA at AAA (sf)
-- Class B at AA (high) (sf)
-- Class XB at A (sf)
-- Class C at A (sf)
-- Class D at A (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations, since the last review. The loan is secured by a 39-story, Class A office property composed of 1.0 million square feet (sf), including 37,276 sf of ground-floor retail space, in the Grand Central submarket of Midtown Manhattan. The collateral benefits from an experienced sponsor, Charles S. Cohen, who is the president and chief executive officer of Cohen Brothers Realty Corporation, a private real estate development and management firm that is reported to have real estate holdings of more than 12 million sf, including multiple Class A office towers in Midtown Manhattan.

According to the March 2023 remittance report, the current trust balance is $262.6 million, reflecting nominal collateral reduction of 4.5% since issuance. The loan, which includes a 15-year loan term with a seven-year interest-only (IO) period, began to amortize in March 2020 and will mature in February 2028. Annualized net cash flow (NCF) for the six-month period ended June 2022 increased to $33.2 million, compared with $28.6 million as of YE2021 and $28.3 million as of YE2020. Similarly, the debt service coverage ratio (DSCR) has increased to 1.85 times (x) as of June 2022, compared with 1.59x as of YE2021 and 1.63x as of YE2020. In addition to the healthy performance metrics, the loan-to-value ratio (LTV) of 73.0% on the issuance loan balance and the DBRS Morningstar value derived in 2020 of $445.1 million reflect the favorable risk profile.

According to the September 2022 rent roll, the property was 83.8% occupied and 84.5% leased, both of which are down from occupancies of 91.3% at YE2021 and 93.4% at YE2022. Tenant rollover risk is low and granular, with leases representing 9.7% of the total net rentable area (NRA) across nine tenant spaces set to roll within the next 12 months; there are no leases scheduled to expire in 2024. The property’s largest tenant, The Interpublic Group of Companies, Inc. (IPG), represents 44.8% of the NRA and is currently on a long-term lease that expires in May 2034. IPG has historically shown commitment to the property, evidenced by a self-funded $40 million renovation of its space at issuance. No other tenant represents more than 5.0% of NRA.

According to Reis market data, vacancy rates within the Grand Central submarket have increased slightly to 12.5% as of YE2022 from 10.5% in early 2022, demonstrating the weakening of the office market in major central business district areas. Class A space has fared slightly better, ending the year with a vacancy rate of 11.8%. Submarket average asking rents remain relatively static from the prior year at approximately $75 per sf (psf) for all office property classes and approximately $85 psf for Class A properties, suggesting upside potential for the subject given its average in-place rents of approximately $63 psf as of the most recent roll, dated September 2022. Despite recent occupancy declines, NCF and DSCR have improved because the property’s below-market leases are resetting to market rental rates with new and renewal leases. Leases representing 8.4% of the NRA have been renewed or newly signed in the past year. DBRS Morningstar expects performance to remain stable given the granularity of the rent roll, high-quality tenancy, and desirable location of the asset within the Grand Central submarket of Midtown Manhattan.

The DBRS Morningstar ratings assigned to Classes C and D are lower than the results implied by the LTV sizing benchmarks. These variances are warranted given the general uncertainty and weakness in the office market and the deteriorated outlook for office properties in major metropolitan cities coupled with the declining occupancy at the property.

ENVIRONMENTAL, SOCIAL, AND 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 XA and XB 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.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023), 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. 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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