Morningstar DBRS Confirms Credit Ratings on All Classes of LCCM 2013-GCP Mortgage Trust, Changes Trends to Negative on Four Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GCP issued by LCCM 2013-GCP Mortgage Trust as follows:

-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (sf)
-- Class C at A (sf)
-- Class D at A (low) (sf)

Morningstar DBRS changed the trends on Classes B, C, D, and X-B to Negative from Stable. All remaining classes have Stable trends.

The underlying collateral for the loan is a Class A office property located in the Grand Central submarket of Midtown Manhattan, New York, between 40th and 41st Streets. The 39-story property totals approximately 1.0 million square feet (sf), including 37,276 sf of ground-floor retail space. Although the collateral benefits from a prime location, within proximity to dozens of major corporate headquarters, the United Nations, Bryant Park, and Grand Central Terminal, the property's occupancy rate has lagged market levels for several years, with cash flows below issuance expectations as a result. In addition, Cohen Brothers Realty Corporation, led by the loan's sponsor, Charles S. Cohen, has faced recent financial difficulties, as a result of cash flow disruptions at a number of other office properties within the firm's portfolio. Should the sponsor fail to achieve a meaningful amount of leasing traction in the near-to-moderate term, Morningstar DBRS notes that the sustained performance challenges could reduce its commitment to the asset, particularly given those trends have likely contributed to a decline in the property's value since issuance. The trend changes to Negative from Stable (on Classes B, C, and D) with this review, reflect these increased risks for the transaction; however, Morningstar DBRS' analysis continues to suggest that the higher-rated A1 and A2 certificates are generally well insulated against loss, supporting the Stable trends on those classes.

Mitigating factors supporting the credit rating confirmations include the property's high-quality, desirable location, a long-term in-place lease for the largest tenant, The Interpublic Group of Companies, Inc. (IPG), (41.5% of the net rentable area (NRA); lease expiration in 2034) and the loan's low going-in loan-to-value ratio (LTV) of approximately 40.0% based on the issuance appraised value and the current loan balance. In addition, the loan's maturity date in February 2028 will provide the sponsor with a fair amount of time to backfill vacant space and work toward stabilization. Despite the adoption of remote and hybrid work, which continues to dampen end-user demand and challenge leasing efforts, Morningstar DBRS believes that the ultimate beneficiaries will be higher-quality assets that are located in desirable markets with historically strong fundamentals that can weather short-to-medium term disruptions.

As of the March 2025 remittance, the current trust balance is $262.6 million, reflecting nominal collateral reduction of 7.8% since issuance. The loan was structured with a 15-year term that included a seven-year interest-only (IO) period. The loan began to amortize in March 2020. As noted above, the loan's sponsor, Charles S. Cohen, is the president and chief executive officer of Cohen Brothers Realty Corporation, a private real estate development and management firm that is reported to have commercial real estate holdings of more than 12.0 million square feet (sf), including multiple Class A office towers in Midtown Manhattan.

The loan is currently being monitored on the servicer's watchlist and is actively cash managed due to a decline in the debt service coverage ratio (DSCR) and the property's occupancy rate. Occupancy at the property has trended downward since issuance, declining to 70.4% from 91.8% as of the September 2024 rent roll. The decline in occupancy has been driven by several tenant departures and downsizings, with eight tenants, representing 11.1% of the total NRA, having vacated the property since October 2022. The largest tenant, IPG has historically shown commitment to the property, as evidenced by a self-funded $40 million renovation of its space at issuance. The tenant's original lease expired in 2021; however, an extension was executed pushing the expiration date to 2034. As part of the lease renewal, IPG agreed to pay an increased rental rate of approximately $70 psf up from $49 psf at issuance. The remainder of the rent roll is granular as no other tenant represents more than 5.0% of NRA. According to the September 2024 rent roll, tenant leases representing approximately 11.0% of the NRA have either expired, or are scheduled to expire through to Q2 2026. The largest tenant with a scheduled lease expiration, Monster Worldwide, Inc., occupies 2.9% of NRA; however, upon departure, two thirds of the space will be backfilled by The TemPositions Group of Companies on an 11-year lease commencing in July 2025.

According to the annualized financial reporting for the trailing-nine-month (T-9) period ended September 30, 2024, the property generated $17.6 million of net cash flow (NCF) (reflecting a DSCR of 0.98x), a decline from the YE2023 and Morningstar DBRS underwritten figures of $24.3 million (a DSCR of 1.13x) and $30.4 million, respectively. The decline in cash flow is primarily a result of a reduction in base rental income, stemming from the higher vacancy rate at the subject property. Morningstar DBRS has requested additional information from the servicer as it pertains to prospective leasing activity at the property; however, as of the date of this press release, a response remains pending. The property's average rental rate of $62.4 psf as of the September 2024 rent roll is below the Grand Central submarket's average asking rental rate of $76.5 psf, according to Q4 2024 Reis data, suggesting the potential for cash flow upside should new leases be signed at higher rental rates. The property's vacancy rate of 29.6% is considerably higher than the submarket average of 12.6% for the same period.

In the analysis for this review, Morningstar DBRS maintained the valuation approach from the prior credit rating action in April 2024, which was based on a Morningstar DBRS NCF of $30.4 million (derived when ratings were assigned in 2020) and a capitalization rate of 7.5%. The resulting Morningstar DBRS value of $400.6 million (an implied LTV of 63.4%) represents a -36.4% variance from the issuance appraised value of $630.0 million (an implied LTV of 40.3%). With this credit rating action, Morningstar DBRS also considered a stressed value scenario, applying the capitalization rate noted above to the in-place NCF. That analysis suggests a sizable as-is value decline for the subject property, resulting in significant downward pressure on Classes B, C, and D, supporting the Negative trends assigned to those certificates with this review. Morningstar DBRS maintained positive qualitative adjustments to the LTV sizing benchmarks, totaling 5.25%, to reflect the property's desirable location in the Grand Central submarket and Class A property quality.

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, or 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).

Classes X-A and X-B 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 (February 28, 2025), https://dbrs.morningstar.com/research/448963.

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.

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS Limited
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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 Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448962.
-- 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.

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.