KBRA Upgrades Five Ratings for COMM 2013-CCRE8
22 May 2024 | New York
KBRA upgrades the ratings of five classes of certificates for COMM 2013-CCRE8, a $207.2 million CMBS conduit transaction. The ratings actions follow a surveillance review of the transaction and are based on the performance of the transaction's remaining two assets, the largest (95.4% of the remaining pool balance) of which has exhibited a meaningful improvement in KNCF and KBRA value from new leasing activity. The details of the assets are outlined below.
375 Park Avenue (largest, 95.4%)
- The loan is collateralized by an 859,249 sf, Class-A office property known also as the Seagram Building, which is located at 375 Park Avenue between 52nd and 53rd streets in the Midtown neighborhood of New York City's borough of Manhattan. The property was built in 1958 and subsequently received landmark status in 1976. In 2022, the sponsor spent over $16.0 million to create a 24,000 sf amenity area called The Playground. It includes 3,500 sf athletic club, pickleball court, and rock climbing wall.
- The transaction collateral is a $197.8 million portion of a $757.8 million, non-recourse, first lien mortgage loan. The mortgage loan is split into senior and subordinate components. The pari passu senior component consists of Notes A-1A and A-1B, with an aggregate principal balance of $197.8 million in the CGCMT 2013-375P transaction, which is rated by KBRA; and a $197.8 million Note A-1C in the COMM 2013-CCRE8 transaction. The subordinate component consists of two pari passu A-2 notes with an aggregate balance of $362.3 million in the CGCMT 2013-375P transaction. Please see CGCMT 2013-375P for the related transaction details.
- After the borrower failed to repay the loan by its original maturity date in May 2023, the loan was modified and extended for one year, with a second option to extend the maturity date to May 2025. The modification includes a cash flow sweep and principal paydowns associated with each extension of the term. According to the May 2024 remittance data, the loan is in the second extension option with a maturity date of May 6, 2025, and there is approximately $23.4 million in the reserve accounts for the loan. In connection with the extensions, the principal balance of the loan has been reduced by a total of $25.0 million.
- According to the December 2023 rent roll, the property was 97.7% leased, compared to 89.8% at last review and 90.2% at securitization. The top 10 tenants represent 65.3% of total base rent and 58.3% of total square footage. New leasing activity includes, Blue Owl Capital Holdings LP (an HQCWT, 19.2% of base rent) and Clayton Dubilier & Rice Holdings, L.P. (8.9%) each of which expanded its footprint in the building and Advent International LP (5.5%) executed an 11-year lease for 33,959 sf with a starting rent of $193.00 per sf. KBRA maintains the loan’s KPO of Perform due to improved performance since issuance.
- The servicer reported occupancies and DSCs are: 97.0% / 1.22x (FY 2023), 90.0% / 0.91x (FY 2022); at closing these were 90.0% / 2.54x. An appraisal dated April 2023 valued the asset at $1.45 billion ($1,745 per sf). The loan has exhibited an improvement in performance since last review and securitization. Due to new leasing activity, the current KNCF has increased 10.1% from last review and 18.6% from the stabilized KNCF at securitization. The KLTV is 40.1%, compared to 46.6% at last review and 49.0% at securitization. The loan has credit characteristics commensurate with a ‘AAA’ rated obligation when analyzed on a stand-alone basis.
11000 Equity Drive (2nd largest, 4.6%, K-LOC, REO)
- The loan is collateralized by a 63,693-sf Class A suburban office building in the Northwest Far submarket of Houston, Texas. The property was originally constructed in 2006 and consists of one 3-story office building within the largest Westway Office Park.
- KBRA maintains the asset's K-LOC designation and KPO of Underperform based on its failure to pay off at its June 2023 maturity date and its REO status.
- According to the September 2023 rent roll, the subject property was 100.0% leased to Exterran Energy Solutions LP (doing business as Enerflex), a publicly traded company in the oil and gas sector. The tenant has a lease expiration date of August 31, 2031 and a termination option effective July 2027, with 12 month's prior notice. According to the special servicer, an unsolicited offer to purchase the building was received and the REO property is under contract of sale with an anticipated closing date of May 2024.
- The servicer-reported occupancies and DSCs are: 100.0% / 1.59x (TTM March 2023), 100.0% / 1.57x (FY 2022); at closing these were 96.0% / 1.61x. An appraisal dated March 2024 valued the asset at $10.5 million ($165 per sf), which is 31.8% below the $15.4 million ($241 per sf) value at issuance. At this time, KBRA does not estimate a loss on this asset.
While the largest loan may exhibit IG credit characteristic of ‘AAA’ when analyzed on a standalone basis, the classes lower in the capital structure of the transaction may be more susceptible to interest shortfalls from unforeseen trust expenses and events such as servicer holdbacks as the two remaining loans are resolved.
Details concerning the classes with ratings changes are as follows:
- Class B to AAA (sf) from AA (sf)
- Class C to AAA (sf) from A (sf)
- Class D to AAA (sf) from BBB- (sf)
- Class E to AA (sf) from BB (sf)
- Class F to A (sf) from B (sf)
Rating Sensitivities
Future rating actions will be dependent upon the ongoing assessment of the timing and likelihood of ultimate payment of principal and accrued interest on the rated certificates. The assessment will consider the expected and actual losses on the remaining assets in the transaction, as well as, the magnitude and extent of interest shortfalls, if any, on the certificates.
To access rating and relevant documents, click here.