Morningstar DBRS Confirms Credit Ratings on All Classes of COMM 2013-CCRE8 Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE8 issued by COMM 2013-CCRE8 Mortgage Trust as follows:

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

All trends are Stable.

Since the last credit rating action, three loans have repaid from the trust and only one loan, 375 Park Avenue (Prospectus ID#1), remains in the pool. Morningstar DBRS considered a recovery analysis for that loan, which suggests the rated certificates in the pool are generally well protected against loss, supporting the credit rating confirmations and Stable trends.

The loan is collateralized by an 830,928-square-foot (sf) 38-story Class A trophy office tower, known as the Seagram Building, in Midtown Manhattan. The $195.3 million trust loan represents a portion of a pari passu loan that reported a total balance of $755.3 million as of the July 2024 remittance. The loan transferred to the special servicer in April 2023 after the sponsor was unable to secure replacement refinancing prior to the loan's May 2023 maturity date. The servicer approved a loan modification to allow for two one-year maturity extension options, pushing the loan's fully extended maturity date to May 2025. Terms of the loan extension included an initial $15.0 million principal curtailment, followed by a secondary $40.0 million principal curtailment, to be paid over a 24-month period. The loan began trapping excess cash in 2021 when the debt service coverage ratio (DSCR) dropped below 1.20 times (x); however, that provision has likely been retracted given the year-end (YE) 2023 DSCR was 1.22x. According to the July 2024 loan-level reserve report, there is approximately $24.5 million held in various escrows that can be used to mitigate any potential rollover risk and/or offset some of the borrower's existing obligations tied to tenant improvement costs. The sponsor, RFR Holding LLC (RFR), recently spent $25.0 million to upgrade the property, creating the "Seagram Playground," a 35,000-sf complex with a sports court, a wellness center, and an executive boardroom, among other amenities.

Occupancy at the property has improved since the departure of the former largest tenant, Wells Fargo (formerly 30.2% of the net rentable area), in February 2021. Occupancy dropped to 72.0% at that time; however, approximately 475,000 sf of new leases were signed or renewed since 2022. The largest lease signed was with Blue Owl Capital Inc. (Blue Owl), which leased 155,000 sf of space (18.0% of NRA) through December 2038. Asking rents at the building are reportedly $235.0 per sf (psf). The second largest tenant at the property, Clayton Dubillier & Rice (8.1% of net rentable area; lease expiration in December 2027), signed a lease for 144,000 sf of space at 550 Madison Avenue in 2023, where it plans to occupy six floors in a relocation from the subject property. It remains unclear if the tenant intends to vacate or sublease its space at the subject; however, as of the date of this press release, the company remains operational at the property. Morningstar DBRS has reached out to the servicer for additional information.

According to the December 2023 rent roll, the property was 97.6% occupied an increase from the year-end (YE) 2022 and YE2021 occupancy rates of 90.2% and 66.8%, respectively. The YE2023 net cash flow (NCF) of $34.0 million (DSCR of 1.2x) is an improvement from the YE2022 NCF of $25.5 million (DSCR of 0.91x) but remains more than 30.0% below the Morningstar DBRS NCF at issuance of $50.9 million (DSCR of 1.8x). However, Morningstar DBRS expects cash flow will continue to improve as new tenants take possession of their space and rent abatements burn off.

An article dated December 2023 reported that RFR successfully secured a $1.1 billion recapitalization of the subject property which is expected to replace existing commercial mortgage-backed securities debt. The financing package is also expected to include approximately $350.0 million of fresh equity from JVP Management, the current mezzanine lender. In April 2023, the collateral was reappraised for $1.45 billion ($1,758 psf), below the issuance appraised value of $1.6 billion ($1,939 psf) but well above the current whole loan balance of $755.3 million. The April 2023 appraisal value is indicative of a healthy whole-loan loan-to-value ratio (LTV) of 52.1%, which will fall further as the required principal curtailments are paid. The loan also benefits from $365.0 million of subordinate debt held outside of the trust, in addition to a $36.6 million nonrated certificate in the transaction, which provides further cushion against the senior debt and rated certificates. Moreover, the loan benefits from an experienced sponsor that remains committed to the asset as demonstrated by the capital expenditure program and principal curtailment payments associated with the loan extension. The property's overall desirability is demonstrated by the significant leasing traction achieved over the last few years, a period that has been marked by lower demand and general market disruptions for most office product in New York and across the country. Even with a sizable haircut to the appraiser's most recent as-is value, the recovery analysis considered by Morningstar DBRS as part of this review suggests the likelihood of a loss remains minimal, supporting Morningstar DBRS' credit rating confirmations with this review.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

Classes X-B and X-C 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 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 (March 1, 2024; https://dbrs.morningstar.com/research/428798).

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

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 info-DBRS@morningstar.com.

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.

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

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

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 (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0 (https://dbrs.morningstar.com/research/428797)

Rating North American CMBS Interest-Only Certificates (June 28, 2024; https://dbrs.morningstar.com/research/435294)

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024; https://dbrs.morningstar.com/research/435293)

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

Legal Criteria for U.S. Structured Finance (April 15, 2024; https://dbrs.morningstar.com/research/431205)

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.