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

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

-- Class D to BB (high) (sf) from BBB (sf)
-- Class E to B (low) (sf) from BB (sf)
-- Class F to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit rating:

-- Class G at C (sf)

The trends on Classes D and E are Stable, while Classes F and G have credit ratings that typically do not carry trends in commercial mortgage-backed securities (CMBS) ratings.

The credit rating downgrades on the Class D, E, and F certificates, as well as the credit rating confirmation on the Class G certificate, reflect Morningstar DBRS' recoverability expectations for the two remaining loans in the pool. The increased loss expectations are primarily attributed to the Lakeland Square Mall loan (Prospectus ID#2; 69.2% of the pool), which recently reported an updated appraisal showing a significant value decline from issuance. In addition, Morningstar DBRS notes there is an increased propensity for interest shortfalls to accumulate given the Lakeland Square Mall's decline in value and the 20 Church Street loan (Prospectus ID#8; 30.8% of the pool) being delinquent and due for the April 2023 loan payment. Interest payments on the Class H certificate were shorted with the September 2024 remittance, accumulating at a rate of approximately $60,000 per month.

The Lakeland Square Mall loan is secured by a 535,937 square feet (sf) portion of in-line and anchor space in an 883,290-sf regional mall in Lakeland, Florida. The loan transferred to special servicing in May 2023 for maturity default. As of the September 2024 remittance, the loan reported current. The sponsor, an affiliate of Brookfield Property Partners, is no longer committed to the property and a receiver was appointed to oversee the foreclosure process. Two noncollateral anchor pads, previously leased to Sears and Burlington Coat Factory, remain vacant. A third noncollateral anchor pad previously occupied by Macy's has been re-leased to Resale America. The remaining anchor tenants include Dillard's (noncollateral) and JCPenney (19.4% of the net rentable area (NRA), leased through November 2025). The in-line space was 86.3% occupied according to the May 2024 rent roll, and total collateral occupancy rate was 77.1%, relatively unchanged from the March 2023 rate of 77.5%. An October 2023 appraisal valued the property at $45.5 million, a 52.1% decline from the issuance appraised value of $95.0 million. Morningstar DBRS applied a conservative haircut in its analysis, resulting in a loss severity of approximately 60.0%.

The second loan is 20 Church Street, secured by a 23-story office building in the central business district of Hartford, Connecticut. The loan transferred to special servicing in March 2022 for payment default and is listed as a nonperforming matured balloon. A loan modification proposal ultimately fell through, and the special servicer is pursuing receivership and foreclosure. The property's occupancy rate has been steady at 78.3% as of the October 2023 rent roll, relatively unchanged from 2022 and 2021, but down from 87.0% at YE2020. The largest tenant, CareCentrix (18.3% of the NRA) had a lease expiration in December 2023; the servicer confirmed the tenant remains at the property, but occupies about a quarter of its former space after downsizing to 11,552 sf at lease expiration. The new lease term runs through April 2029. In addition, tenants representing an additional 6.8% of the NRA have leases that are scheduled to expire in the next 12 months. As of the October 2023 rent roll, tenants at the property paid an average rental rate of $23.60 per square foot (psf), compared with the Hartford central business district submarket rental rate of $22.80 psf. The vacancy rate at the property, while high at 21.7%, is comparable with the average 24.1% submarket vacancy rate reported by Reis. A March 2023 appraisal valued the property at $17.4 million, down from the May 2022 and issuance appraised values of $34.3 million and $35.0 million, respectively. Morningstar DBRS applied a large haircut to the March 2023 appraised value under the assumption that property values have likely declined further amid the softening submarket conditions and low investor appetite for the property type. The resulting loss severity was approximately 70.0%.

Morningstar DBRS' projected liquidated losses are expected to fully reduce the balance of the unrated Class H and Class G certificate balances and approximately 90.0% of the Class F balance. Morningstar DBRS notes that loss projections may increase should property values further decline or should the loans languish in special servicing with servicing advances accumulating. Given the softening submarket fundamentals, property characteristics, and the general lack of liquidity for these asset types, Morningstar DBRS believes the resolution periods could be extended.

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 factors 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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 01, 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.

These are solicited credit ratings.

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

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), https://dbrs.morningstar.com/research/428797

-- 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, 2024), https://dbrs.morningstar.com/research/438283

-- 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 (July 17, 2023).

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