Morningstar DBRS Confirms All Classes of COMM 2013-CCRE6

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE6 issued by COMM 2013-CCRE6 Mortgage Trust as follows:

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

The trends on all classes are Stable with the exception of Class F, which has a rating that typically does not carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

Since the last credit rating action, 10 loans have exited the trust, including nine loans that repaid in full. One loan that was previously in special servicing was liquidated with a loss that was in line with Morningstar DBRS’ expectations. Currently just two loans remain in the trust, both of which defaulted at their February 2023 maturity dates and have since been extended. Given that both remaining loans defaulted at maturity, Morningstar DBRS’ expected loss for each was based on stressed value estimates for both collateral properties backing the loans. Morningstar DBRS’ expected losses are also generally stressed given the increased propensity for interest shortfalls should either of the remaining loans default again and become delinquent.

The largest of the remaining loans is Federal Center Plaza (Prospectus ID#1; 54.2% of the pool), which is secured by the borrower’s fee-simple interest in two adjoining eight-story office buildings, 400 C Street SW and 500 C Street SW in Washington, D.C., totaling 725,317 square feet (sf), as well as a 57.1% interest in a three-level, connected, subgrade parking garage. At issuance, The General Services Administration (GSA) leased more than 93.0% of the property on behalf of multiple federal agencies, including the Federal Emergency Management Agency (FEMA or the agency). The property was built to suit the agency in the early 1980s and has been continuously occupied by GSA tenants ever since; however, the GSA has downsized over the past several years. FEMA occupies the majority of the GSA space, with 162,293 sf (22.4% of net rentable area (NRA)) at 400 C Street SW and 303,546 sf (41.9% of NRA) at 500 C Street SW on a lease that was recently extended through August 2027. Total property occupancy is 74.4% as of September 2023.

In December 2023, it was announced that FEMA would be relocating its headquarters to a federally owned building at 301 Seventh Street SW. That building is said to be in need of renovation, and FEMA is not expected to take occupancy until the work is complete. The agency's recent extension of its lease at the collateral properties indicate that build-out of the new space is likely to take some time.

The loan transferred to the special servicer in December 2022 for imminent default after the borrower delivered notice stating that it would not be able to repay the loan upon maturity in February 2023. A modification was finalized in November 2023, the terms of which included an extension of the maturity date to February 2025 with an additional one-year extension option. The loan was returned to the master servicer and, as of December 2023, the loan has approximately $15.5 million in reserves, including $8.8 million in a tenant reserve. The loan continues to cover debt obligations with a debt service coverage ratio (DSCR) of 2.19x for the trailing nine months ended September 30, 2023, although this is down from the DSCR of 2.59x at YE2022. Although the value at issuance of $309 million implies a low loan-to-value ratio (LTV) of 42.1%, Morningstar DBRS believes it is likely the as-is value has fallen significantly in recent years given the developments described above and the general stress on the office property type, particularly in the Washington D.C. market.

The second remaining loan is The Avenues (Prospectus ID#3; 45.8% of the pool), which is secured by 599,030 sf of inline space within a 1.1 million sf regional mall in Jacksonville, Florida. The noncollateral anchors are Dillard’s, Belk, and JCPenney. The collateral anchors include Forever 21, which occupies 116,298 sf (representing 19.4% of the collateral NRA), and a vacant former Sears box totaling 121,208 sf (representing 20.2% of the NRA) that closed in 2019. The collateral’s occupancy rate as of the June 2023 rent roll was 63%, down from 91.3% at issuance. There are no large rollover concentrations in the near term as Forever 21’s lease, previously scheduled to expire in January 2023, was extended through January 2026. The subject is considered inferior to the favored mall in the area, St. Johns Town Center, which shares common sponsorship with the subject in Simon Property Group.

The loan transferred to special servicing in November 2022 for imminent default and failed to repay ahead of its February 2023 maturity date. A modification was finalized in April 2023, the terms of which included an extension of the maturity date to February 2026. The loan transferred back to the master servicer with the loan modification, which also called for all excess cash flow to be swept into a lockbox reserve through maturity; the reserve has a balance of $5.5 million as of December 2023. Although the DSCR is high at 3.10x as of June 2023 compared with 2.92x at YE2022 and 2.76x at YE2021, net cash flow (NCF) remains nearly 30% below issuance figures.

In its analysis, Morningstar DBRS considered a range of values for both assets. For Federal Center Plaza, Morningstar DBRS applied various capitalization rates, ranging from 8.75% to 9.50%, given the property type, location, the asset’s declining occupancy rate, and single-tenant concentration, on the annualized September 2023 cash flow, resulting in implied LTVs between 95% and 104%. Morningstar DBRS also conducted a dark-value analysis to reflect the possibility that FEMA, which has a lease that expires within 18 months of the loan’s final maturity, vacates, leaving the property nearly completely empty. Morningstar DBRS’ concluded dark value of $104.1 million, which assumed a market rental rate of $42.00 per sf and one year of down time, resulted in an implied LTV of 125%. Federal Center Plaza’s appraised value at issuance was $309 million.

For The Avenues, which had an issuance appraised value of $244 million, Morningstar DBRS also considered a range of capitalization rates between 9.0% and 9.75% applied to the YE2022 NCF, resulting in implied LTVs of 84% to 92%. As an additional stress, given Forever 21’s lease expiration one month prior to the extended loan maturity as well as the declining inline occupancy rate and the loan’s prior default, Morningstar DBRS applied a 65% haircut to the issuance appraised value, resulting in an implied LTV of 129%.

Using these value estimates, Morningstar DBRS concluded that there are likely to be sufficient funds to repay classes B through E, with losses anticipated for Class F. Morningstar DBRS notes that, given the pool concentration and prior default of the remaining loans, there is increased propensity of interest shortfalls for investment-grade rated bonds. Should the performance of the assets stagnate and vacancies remain unfilled, Morningstar DBRS’s value estimates may be reduced and classes could be subject to downgrade pressure. Although the timeline to maturity has been extended, there is no monthly amortization, and if either of the loans again default or become delinquent, all classes would be at risk of unpaid interest.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis. A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://dbrs.morningstar.com/research/416784.

Class X-B is an interest-only (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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (16 March 2023),
https://dbrs.morningstar.com/research/410912.

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

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.

Morningstar DBRS 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 two remaining loans. In those cases, the DBRS Morningstar 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://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/422859
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://dbrs.morningstar.com/research/415687

-- Legal Criteria for U.S. Structured Finance (December 7, 2023),
https://dbrs.morningstar.com/research/425081

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