Morningstar DBRS Downgrades Credit Ratings on Two Classes of COMM 2013-CCRE6 Mortgage Trust, Confirms Credit Ratings on Remaining Classes

DBRS Limited (Morningstar DBRS) downgraded the credit ratings on two classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE6 issued by COMM 2013-CCRE6 Mortgage Trust as follows:

-- Class D to BB (low) (sf) from BBB (low) (sf)
-- Class E to B (low) (sf) from BB (low) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class B at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class C at AA (sf)
-- Class PEZ at AA (sf)
-- Class F at C (sf)

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

The credit rating downgrades reflect the recoverability expectations for the two remaining assets in the pool. Both assets exhibit increased credit risk stemming from shortening maturity date horizons, increased competition, and potential low investor appetite, which is likely to lead to difficulty for each borrower in seeking replacement financing or asset sales. Morningstar DBRS considered a recoverability analysis, which suggests the most junior certificates are at risk to incur losses as property values continue to decline, warranting the credit rating downgrades. The Stable trends reflect the conservative liquidation scenarios as the credit ratings with this review accurately reflect the credit profile of the remaining assets.

The largest remaining loan in the pool, Federal Center Plaza (Prospectus ID#1, 56.5% of the pool), 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. The loan transferred to special servicing in December 2022 for imminent default after the borrower could not repay the loan prior to maturity in February 2023. A loan modification closed in November 2023, terms of which included a maturity extension to February 2025 with an additional one-year extension option to February 2026. The loan remains on the servicer's watchlist for the upcoming maturity date and low occupancy rate with an update pending from the servicer regarding the borrower's intentions. Both buildings were built to suit for two General Services Administration (GSA) tenants in the early 1980s and have been continuously occupied by GSA tenants ever since; however, tenants have downsized over the past several years. The Federal Emergency Management Agency (FEMA) occupies 64.3% of total net rentable area (NRA) across the property on a lease that extends through August 2027. According to various news sources, in December 2023 it was announced that FEMA would be relocating two blocks from the subject property to a renovated and federally owned facility at 301 7th Street SW in 2027; however, online articles dated June 2024 stated that market conditions have halted those plans. Morningstar DBRS has inquired with the servicer for clarification and additional detail. According to the June 2024 rent roll, total property occupancy was 74.4% with an average in-place rental rate of $42.60 per square foot (psf). By means of comparison, Q2 2024 Reis data reported an average rental rate and vacancy rate of $54.10 psf and 11.5%, respectively, for the Southwest submarket of Washington D.C. Net cash flow (NCF) remains depressed as of the June 2024 financials with an annualized figure of $11.7 million, reflecting a debt service coverage ratio (DSCR) of 2.14 times (x). The figure represents a 36.5% decline from the $18.4 million Morningstar DBRS NCF derived at issuance. As of the November 2024 remittance, there are $19.6 million in total reserves, of which $8.3 million is being held in tenant reserves. The collateral was reappraised in February 2023 for $237.0 million, a 23.3% decline from the issuance appraised value of $309.0 million but higher than the $130.0 million loan balance. The implied loan-to-value (LTV) ratio is 54.8% remains low, though higher than the 42.1% LTV at issuance.

The second remaining loan, The Avenues (Prospectus ID#3, 43.5% of the pool), is secured by 599,030 sf of in line space within a 1.1 million sf regional mall in Jacksonville, Florida. The loan transferred to special servicing in November 2022 for imminent default as the borrower was unable to repay the outstanding loan prior to maturity in February 2023. A loan modification closed in April 2023, which included a maturity extension to February 2026 and the activation of a cash trap with excess funds held in a lockbox reserve. As of September 2024, the reserve balance was reported at $11.6 million, with an additional $3.9 million held in other reserves. The noncollateral anchors are Dillard's, Belk, and JCPenney. The collateral anchors include Forever 21 (19.4% of NRA, expiring January 2026) and a vacant former Sears box totaling 20.2% of NRA that closed in 2019. According to recent servicer commentary, Furniture Source is operating as a temporary tenant in the former Sears space. Morningstar DBRS has inquired with the servicer regarding current lease terms. 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 collateral's occupancy rate as of the June 2024 rent roll was 65.6%, down from 91.3% at issuance. Given the low occupancy rate, the loan remains on the servicer's watchlist. According to the annualized June 2024 financials, the NCF was $13.3 million, reflecting a DSCR of 3.31x. The figure is 14.6% less than the Morningstar DBRS NCF of $16.0 million, primarily driven by increased competition and the departure of Sears in 2019. The collateral was reappraised for $166.0 million in April 2023, a 32.0% decline from the issuance appraised value of $244.0 million. The April 2023 value reflects an increased LTV of 66.0% when compared with the issuance LTV of 45.0%; however, the loan recently benefitted from an unscheduled $10.0 million principal curtailment in October 2024 disbursed from lockbox reserves, which reduced the loan balance to $100.0 million.

In its analysis, Morningstar DBRS considered a range of values for both assets. For Federal Center Plaza, Morningstar DBRS used the annualized June 2024 annualized cash flow and applied various capitalization (cap) rates given the property type, current market conditions, location, the asset's declining occupancy rate, and single-tenant concentration. The cap rates ranged from 9.25% to 10.25%, resulting in implied LTVs between 103% and 114%. Morningstar DBRS also conducted a dark-value analysis to reflect the possibility that FEMA ultimately vacates, leaving the property almost completely empty. Morningstar DBRS' concluded dark value of $104.1 million assumed a market rental rate of $42.00 per sf and one year of down time, resulted in an implied LTV of 125.0%.

Regarding The Avenues loan, Morningstar DBRS also used the June 2024 annualized NCF with cap rates ranging between 9.0% and 10.0%. The resulting implied LTVs ranged between 68.0% and 75.0%. As an additional stress, given Forever 21's scheduled lease expiration one month prior to the extended loan maturity as well as the declining in line occupancy rate and the loan's prior default, Morningstar DBRS applied a 50% haircut to the April 2023 appraised value of $166.0 million, resulting in an implied LTV of 121.0%.

Using these stressed value estimates, Morningstar DBRS concluded there are likely to be sufficient funds to repay Class B through Class E, with any potential losses to be contained to Class F. Morningstar DBRS notes that given the pool concentration and prior default of the remaining loans, there is increased propensity of interest shortfalls to potential impact investment-grade rated bonds. Should the performance of the remaining assets stagnate and borrowers be unable to execute exit strategies, Morningstar DBRS' value estimates may be reduced with credit ratings subject to downgrade pressure.

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

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 (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 ratings were initiated at the request of the rated entity.

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

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

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 for the remaining loans.

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
-- 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 (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.