DBRS Morningstar Downgrades Credit Ratings on Two Classes of COMM 2013-CCRE7 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) downgraded its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE7 issued by COMM 2013-CCRE7 Mortgage Trust as follows:

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

In addition, DBRS Morningstar confirmed its credit ratings on the following classes:

-- Class D at BBB (sf)
-- Class E at BB (sf)

The trends on Classes D and E remain Stable, while Classes F and G have credit ratings that typically do not carry trends in commercial mortgage-backed securities (CMBS) ratings. The downgrades follow DBRS Morningstar’s increased loss projections for the remaining assets, attributed to recent maturity defaults and declining property values. Since the last credit rating action in November 2022, 40 loans have repaid from the trust, leaving the remaining pool very concentrated with only two loans still outstanding. Both loans are in special servicing, with foreclosure proceedings under way. In addition to the increased loss expectations, DBRS Morningstar notes the propensity for interest shortfalls to accumulate given that the two loans are delinquent. Interest payments were shorted on both the Class G and nonrated Class H certificates with the September 2023 remittance.

The larger of the two remaining loans is Lakeland Square Mall (Prospectus ID#2, 69.2% of the pool). The collateral includes 535,937 square feet (sf) of in-line and anchor space in an 883,290-sf regional mall in Lakeland, Florida, 35 miles east of Tampa. Two noncollateral anchor pads, previously leased to Sears and Burlington, are vacant. Another noncollateral anchor pad previously occupied by Macy’s has been released to Resale America, which has an upcoming expiration in December 2023. Remaining anchor tenants include Dillard’s (noncollateral) and JCPenney (19.4% of the net rentable area (NRA), lease through November 2025). The in-line space was 74.6% occupied according to a March 2023 rent roll, and total collateral occupancy was 77.5%, down from 93.1% at YE2022 following the departure of Burlington at its March 2023 lease expiration. Leases representing 15.4% of the NRA have already expired or will expire within the next 12 months.

The loan transferred to special servicing in May 2023 after it failed to repay at the April 2023 maturity. According to recent servicer commentary, the sponsor, an affiliate of Brookfield Property Partners, is no longer committed to the property and the appointment of a receiver and the initiation of foreclosure proceedings are in process. An updated appraisal has not yet been made available, but DBRS Morningstar expects the as-is value has likely declined significantly given the lower occupancy rate and the lower investor demand for regional malls, particularly those in secondary markets such as the subject. Based on similarly positioned regional malls for which updated appraisals have been received in the last few years, DBRS Morningstar estimated liquidation scenarios based on haircuts between 50% and 70% of the issuance value for the mall, with loss severities ranging between approximately 25% and 60%.

The smaller remaining loan is 20 Church Street (Prospectus ID#8, 30.8% of the pool). The loan is secured by a 23-story office building in the central business district of Hartford, Connecticut. Property occupancy has been steady at 79.1% as of the July 2023 rent roll, relatively unchanged from 2022 and 2021 but down from 87% at YE2020. The largest tenant, CareCentrix (18.3% of the NRA) has an upcoming lease expiration in December 2023. Leases representing an additional 1.9% of the NRA are scheduled to expire in the next 12 months. Reis reports that the Hartford central business district office submarket experienced an average vacancy rate of 25.4% for Q2 2023.

The loan transferred to special servicing in March 2022 for payment default and is now past its April 2023 maturity. A modification proposal ultimately fell through, and the special servicer is pursuing receivership and foreclosure. A March 2023 appraisal valued the property at $17.4 million, down from the May 2022 appraised value of $34.3 million and the issuance appraised value of $35.0 million. DBRS Morningstar’s projected loss severity, which is in excess of 55%, is based on a stress to the most recent appraised value.

The lower end of DBRS Morningstar’s projected liquidated losses are anticipated to fully reduce the balance to the unrated Class H certificate and partially reduce the Class G certificate. The higher end of the liquidated loss estimate, based on a higher haircut to the issuance value for Lakeland Square Mall, would fully erode both the Class G and Class F certificates. DBRS Morningstar notes that loss projections may increase should the property values decline further or the loans languish in special servicing with servicing advances accumulating. Given the property locations, condition, and the general lack of liquidity for these asset types, DBRS Morningstar believes the resolution periods could be extended.

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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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 credit ratings are typically based on a recoverability analysis for the remaining loans.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model version 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

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