Morningstar DBRS Downgrades Credit Ratings on Four Classes of COMM 2013-300P Mortgage Trust, Changes All Trends to Stable From Negative

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on the following classes of COMM 2013-300P Mortgage Trust, Commercial Mortgage Pass-Through Certificates issued by COMM 2013-300P Mortgage Trust:

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

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

-- Class A-1 at AA (low) (sf)
-- Class A1P at AA (low) (sf)
-- Class X-A at AA (sf)

All trends have been changed to Stable from Negative.

The credit rating downgrades reflect the expectation that, while the collateral office property has recently shown performance improvements and the loan benefits from an experienced and what appears to be a committed sponsor, the significant delta between the issuance cash flows and what the property is likely to achieve over the near to moderate term is expected to remain.

The credit rating confirmations and change to Stable trends reflect the overall stable to improving outlook for the underlying collateral, as further outlined below. Although performance declines related to a major tenant downsizing have been monitored for the past few years, there have been recent improvements and the submarket remains a relatively strong performer as office demand continues to stabilize, particularly in New York where return to office traffic has generally led the pack for core markets in the United States. In April 2024, Morningstar DBRS downgraded its credit ratings across the capital stack, reflective of an updated Morningstar DBRS value for the collateral office building to reflect the sustained cash flow declines from issuance, as well as the general view that office property types were exposed to increased risks that were expected to be sustained through the longer term.

The Negative trends placed on all classes as part of the April 15, 2024, credit rating action generally reflected the view that the collateral property's value had declined significantly from the issuance figure, putting significant pressure on the sponsor's ability to secure a replacement loan at the 2025 maturity. With this credit rating action, the credit rating downgrades for the four lowest classes in the capital stack reflect those increased risks and as such, the Negative trends were moved back to Stable. Although there remain concerns surrounding the refinance prospects given the general lack of liquidity and/or willingness to lend on office property types in the current environment, as well as the high leverage implied by the Morningstar DBRS value, there are mitigating factors in the subject's location, recent leasing traction and experienced sponsorship that support an overall optimistic view that a takeout or another maturity extension with additional sponsor equity contributed will be achieved.

The underlying loan for the transaction is secured by the borrower's fee-simple interest in 300 Park Avenue, also known as the Colgate Palmolive Building, a Class A, LEED Silver-certified office tower on the west side of Park Avenue between 49th Street and 50th Street. The property was constructed in 1954 and, in addition to the office tower, the collateral consists of ground floor retail and storage space components. The property is in the Grand Central submarket and stands 25 stories tall, with just over 770,000 sf of rentable space (as calculated at issuance) and is LEED Silver-certified. The loan is sponsored by Prime Plus Investments, LLC, which is indirectly owned by Tishman Speyer Crown Equities 2007 LLC; the National Pension Service acting for the National Pension Fund of the Republic of Korea; the Government of Singapore Investment Corporation (Realty) Pte Ltd.; and Andra AP-fonden, the Second Swedish National Pension Fund (AP2) of the Kingdom of Sweden.

At closing in 2013, the $485 million subject transaction was used to refinance and pay off existing debt of $135.2 million, with an equity return of $334.3 million to the sponsors. The loan is interest only (IO) and was originally structured with a 10-year term, maturing in August 2023. However, as part of a loan modification that was granted by the servicer in June 2023, a one-year extension with an additional one-year extension option was granted, ultimately pushing the maturity out to August 2025. As part of the loan modification, all excess cash after debt service is to be trapped and held as additional collateral through the end of the extended loan term. In addition, the sponsor contributed approximately $20.0 million into a capital reserve account to fund capital expenses and leasing costs, as well as a $5.0 million shortfall reserve that was subject to replenishment provisions should any funds be drawn. As of the February 2025 reporting, the servicer reported $11.5 million held across all reserve accounts.

The property's largest tenant, Colgate-Palmolive Company (Colgate), operates its global headquarters at the subject and at issuance, represented approximately 65.3% of the net rentable area (NRA) on a lease through June 2023. However, in 2019, Colgate executed an extension through 2033 that also resulted in a graduated reduction in its footprint between 2020 and 2022 and reduced its rental rate from $126 per square foot (psf) to an initial rental rate of $93 psf. According to the September 30, 2024, rent roll provided by the servicer, Colgate represents approximately 30% of the NRA with a rental rate of $99.10 psf and a scheduled rent step in July 2029.

Following the downsizing of Colgate, the property's occupancy rate fell from 91.6% at issuance to a low of 79.3% in 2021. Leasing momentum over the last few years has been generally steady; however, with the September 30, 2024 leased rate at 92.2%, up from an occupancy rate of 83.1% at YE2023. The property benefits from its location within Midtown Manhattan on Park Avenue, where demand in the post-pandemic environment has been reported consistently healthy. The superior proximity to Grand Central Station is also a significant draw for the subject, and likely a contributor to the leasing traction in the last few years. Three leases shown in the September 30, 2024 rent roll were scheduled to begin in Q1 2025, with terms ranging between five and 10 years. Office leases showing 2024 start dates had rental rates between $63 psf and $87 psf and typically included a free rent period of six months (or slightly longer for longer-term leases). Reis reported a Q4 2024 vacancy rate of 12.3% for the Grand Central submarket overall, with average effective rents of $57.76 psf. Reis forecasts slight upticks in vacancy over the next five years, but expects demand to remain generally healthy, with a projected vacancy rate of 13.7% by the end of 2029.

The servicer reported YE2023 net cash flow (NCF) of just under $30.0 million, with a debt service coverage ratio (DSCR) of 1.38 times (x); cash flows fell to an annualized figure of $27.6 million, with a DSCR of 1.27x as of Q3 2024. However, the free rent periods for leases signed in 2023 and 2024, as well as the pending lease commencement dates for the tenants taking occupancy in 2025, are significant contributors to the reported cash flow declines. Given the annualized rent figures shown in the September 30, 2024, rent roll, Morningstar DBRS anticipates revenues will significantly increase in the coming year, back toward the 2022 figures when NCF was reported at $33.9 million and the DSCR was reported at 1.56x. However, it is expected that cash flows will remain well below the issuance projections given the lower in-place rents following Colgate's downsize.

The Morningstar DBRS value of $484.4 million, derived as part of the April 2024 credit rating action, represents a loan-to-value ratio (LTV) of 100.1% on the trust balance of $485.0 million. The Morningstar DBRS value is based on the YE2022 NCF of $33.9 million and a cap rate of 7.0%. The issuance appraised value was $1.0 billion, implying an LTV of 49.0%.

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

Class X-A is an 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 (December 13, 2024; https://dbrs.morningstar.com/research/444617).

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

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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 Single-Asset/Single-Borrower Ratings Methodology (December 13, 2024), https://dbrs.morningstar.com/research/444612
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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

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