DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C7 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7 as follows.
Class X-B at A (sf)
Class C at A (low) (sf)
Class PST at A (low) (sf)
Class D at C (sf)
Class E at C (sf)
Class F at C (sf)
Class G at C (sf)
Morningstar DBRS changed the trends on Classes X-B, C, and PST to Negative from Stable to reflect increased loss expectations for the loans in special servicing, which represent more than 90.0% of the pool balance. Classes D, E, F, and G have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.
As of the January 2024 remittance, 11 loans remain in the pool, representing a collateral reduction of 88.2% since issuance. Since the last credit rating action, the 3555 Timmons Lane (Prospectus ID#16) and North Ridge Shopping Center (Prospectus ID#30) loans were repaid in full, while the Hampton Inn Lexington loan (Prospectus ID#35) was liquidated with no loss to the trust. The credit rating actions are driven primarily by the two largest remaining loans, both of which are in special servicing and are backed by regional malls located in tertiary/secondary markets and have reported significant value declines from issuance.
The largest loan is Solomon Pond Mall (Prospectus ID#2, 51.3% of the pool), which is backed by 399,266 square feet (sf) of in-line space in an 884,758 sf regional mall in Marlborough, Massachusettes, approximately 30 miles west of downtown Boston. The mall is anchored by JCPenney and Macy's. A third anchor space previously occupied by Sears has been dark since the store closed in 2021. None of the anchor spaces are collateral for the loan. The loan transferred to special servicing in June 2020 for imminent monetary default and a receiver was appointed in September 2021. Since occupancy bottomed out at 69% in June 2021, the borrower has made leasing traction with leases representing 44.5% of the net rentable area (NRA) newly executed since January 2022. Occupancy has increased to 83.7% as of February 2023; however, the majority of these leases are short term and are scheduled to expire through 2024. Net cash flow (NCF) has improved, with an annualized cash flow of $9.2 million based on financials for the trailing six-month period ended June 30, 2023, above the year-end (YE) 2022 and YE2021 figures of $6.7 million and $7.7 million, respectively, but still below $13.2 million at issuance.
A March 2023 appraisal valued the property at $30.4 million, a steep decline from the issuance appraised value of $200.0 million. The sponsor, Simon Property Group, has missed the last two debt service payments according to most recent reporting, and the special servicer's disposition strategy remains unclear. Given the significant value decline, concentrated tenant rollover risk, and NCF (which remains well below issuance expectations), Morningstar DBRS assumed a stressed scenario in its analysis, resulting in a full projected loss to the loan.
The second-largest loan is Valley West Mall (Prospectus ID#7, 23.4% of the pool), an 856,248 sf, regional mall in West Des Moines, Iowa. The loan transferred to special servicing in September 2019 for imminent default and a receiver was appointed in 2020. The special servicer is currently pursuing a foreclosure although a note sale is also being contemplated. Occupancy remains low at 62.0% as of September 2023 compared with 98.0% at issuance. At issuance, the subject was anchored by JC Penney, Younkers, and Von Maur; however, only JC Penney remains at the property, as Younkers vacated in 2018 and Von Maur relocated in 2022 to a competing mall located five miles from the subject. Performance had been declining prior to the pandemic, and the September 2023 and YE2022 net cash flows are negative, according to servicer reporting. The February 2023 appraisal valued the property at $18.0 million compared with $95 million at issuance. Given the significant value decline, persistent low occupancy, and inferior market positioning relative to a proximate competing mall, Morningstar DBRS assumed a stressed scenario in its liquidation analysis, resulting in a full projected loss to the loan.
The final two specially serviced loans are secured by 494 Broadway (Prospectus ID#19, 11.3% of the pool) and 440 Broadway (Prospectus ID#28, 6.2% of the pool), two retail properties located in the Soho neighborhood of New York City. Both loans transferred to special servicing for maturity default and are expected to be foreclosed. Both loans received appraisal values in 2023 that are below the issuance value and were liquidated from the pool in Morningstar DBRS's analysis at a cumulative loss approaching $21.5 million.
There are a remaining seven loans, representing approximately 7.0% of the pool, that are not in special servicing, all of which are secured by single-tenant retail properties, 100% leased to Walgreens. These loans are all fully amortizing fixed-rate loans that have maturity dates ranging from June 2025 until November 2035. Morningstar DBRS expects these loans to continue to perform, although their extended maturity profile poses some concerns relative to the disposition timing of the specially serviced loans. A recovery of the Class C certificate is reliant on the full repayment of the performing loans as well as the proceeds from the liquidations from the specially serviced loans. Considering the pool is concentrated, susceptible to adverse selection and volatility to further value/performance decline, the Negative trends are warranted.
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 DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) https://dbrs.morningstar.com/research/416784
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 the North American CMBS Surveillance Methodology (March 16, 2023; https://dbrs.morningstar.com/research/410912).
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.
DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down, with only a few loans remaining. In those cases, the DBRS Morningstar credit ratings are typically based on a recoverability analysis for the remaining loans. Additionally, sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.
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.
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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 (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0 (https://dbrs.morningstar.com/research/422859)
Rating North American CMBS Interest-Only Certificates (December 13, 2023; https://dbrs.morningstar.com/research/425261)
Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://dbrs.morningstar.com/research/415687)
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://dbrs.morningstar.com/research/420982)
North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://dbrs.morningstar.com/research/419592)
Legal Criteria for U.S. Structured Finance (December 7, 2023; https://dbrs.morningstar.com/research/425081)
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.
OLD COPPER COMPANY 