Press Release|CMBS
KBRA Affirms All Ratings for WFRBS 2013-C11
6 Dec 2024 | New York
KBRA affirms all of its outstanding ratings for WFRBS 2013-C11, a $216.4 million CMBS conduit transaction. The affirmations follow a surveillance review of the transaction and are based on the performance and expected recovery of the transaction's two remaining loans, which has not meaningfully changed since KBRA’s last ratings change in December 2022. The two remaining loans include Republic Plaza (60.0% of pool balance) and 515 Madison Avenue (40.0%). The loans are outlined below.
Republic Plaza (largest, 60.0%, K-LOC, Underperform)
- The loan is collateralized by a 1.3 million sf, Class-A office tower located in the Denver, Colorado CBD. The asset features 48,000 sf of retail space and two levels of below-grade parking. In addition, the collateral includes a 12-story parking garage with 1,275 stalls. Brookfield Office Properties Inc. is the loan sponsor. The property was built in 1982 and renovated in 2002.
- KBRA maintains the loan’s K-LOC designation and KPO of Underperform based on it failing to pay off at its December 2022 scheduled maturity, its prior status with the special servicer, as well as its low occupancy compared to issuance. The loan was transferred to the special servicer in March 2023 due to maturity default; however, it was returned back to the master servicer in September 2023 following the loan’s maturity extension effective July 2023. The terms of the extension agreement include an extension of the loan’s maturity date to March 2026, a principal curtailment payment of $6.0 million, and a cash trap remains in effect with excess cash flow over $400,000 to be applied as principal curtailment. Since last surveillance review, the loan has paid down by $45.4 million (16.2% of the original whole balance of $280.0 million).
- According to the June 2024 rent roll, inclusive of additional leasing updates, the property is 72.7% leased, up from 61.9% at last review and down from 94.5% at issuance. The increase in occupancy is primarily a result of a new lease executed in November 2023 with the Denver District Attorney, now the second largest tenant. The lease was for 146,133 sf and represents 13.3% of current total base rent with leases scheduled to expire in 2026 (6.4% of base rent) and 2037 (6.9%). In addition, the current largest tenant, Ovintiv USA (Ovintiv, 24.5%) extended its lease for seven years through April 2033. However, it reduced its footprint by 71,595 sf (5.5% of collateral sf). Ovintiv has the right to give back an additional two floors between May 2024 and May 2026 with prior notice. As of the current review, KBRA has not received any additional information on the tenant exercising this right.
- The servicer-reported occupancies and DSCs are: 71.8% / 1.31x (YTD June 2024), 67.3% / 1.16x (FY 2023); at closing, these were 94.5% / 1.55x. An appraisal dated December 2022 valued the asset at $298.1 million ($229 per sf), which is 44.3% below the $535.4 million ($411 per sf) value at issuance. KBRA's analysis resulted in an estimated loss of $23.6 million (10.0% estimated loss severity) on the whole loan balance of $234.6 million based on a value of $212.3 million ($163 per sf). The value was derived using a capitalization approach with a KBRA NCF of $18.0 million and a rate of 8.5%.
515 Madison Avenue (2nd largest, 40.0%, K-LOC, Underperform)
- The loan is collateralized by a 324,265 sf, Class B office tower located at the intersection of East 53rd Street and Madison Avenue in New York City's borough of Manhattan. The property was built in 1931 and renovated in 2003 and from 2008 to 2010.
- KBRA maintains the loan's K-LOC designation and KPO of Underperform based on it failing to pay off at its January 2023 scheduled maturity and the loan's prior status with the special servicer. The loan was transferred to the special servicer in November 2022 due to imminent maturity default and was returned to the master servicer in August 2023 following a modification agreement executed in April 2023. The terms of the modification agreement included an extension of the loan’s maturity date to January 2025, with a $6.4 million deposit of $6.4 million in a capital expenditure reserve and a $5.0 million curtailment required in January 2024. The modification allows for the option to extend the loan to January 2026, and a principal curtailment of $5.0 million with an. A cash trap will remain in effect for the remainder of the loan’s term.
- In July 2024, the special servicer and borrower executed a consent and second loan modification agreement. The modification required the borrower to fund $1.0 million into the special purpose reserve and an additional $4.0 million on or prior to August 8, 2024. According to the August 2024 remittance, the reported outstanding reserve balance totaled $5.0 million, confirming the required funds were deposited as per the agreement. Per the November 2024 remittance, the reserve balance is $2.6 million. As of the current review, there has been no indication and/or confirmation from the servicer that the borrower has provided notice of exercising their second extension option. As of the November 2024 remittance, the loan's maturity date is reported as January 2025.
- According to the June 2024 rent roll, inclusive of additional leasing updates, the collateral was 82.6% leased, compared to 75.7% at last review and 98.7% at closing. Additionally, pursuant to the rent roll, approximately 11.1% of base rent (8.8% of collateral sf) is scheduled to expire through YE 2025. Since last review, the current second largest tenant, Z&V LLC, moved to the property in January 2024 and executed a lease for 9,213 sf and represents 4.6% of total base rent.
- The servicer-reported occupancies and DSCs are: 81.8% / 0.730x (YTD June 2024), 77.2% / 0.81x (FY 2023), 86.3% / 1.24x (FY 2022); at closing, these were 98.7% / 1.61x. An appraisal dated February 2023 valued the asset at $155.0 million ($478 per sf), which is 32.6% below the $230.0 million ($709 per sf) value at issuance. KBRA's analysis resulted in an estimated loss of $13.2 million (15.2% estimated loss severity) on the loan balance of $86.9 million, based on a value of $73.9 million ($228 per sf). The value was derived using a capitalization approach with a KBRA NCF of $6.5 million and a rate of 8.75%.
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 ratings and relevant documents, click here.
Related Publication
Methodologies
- CMBS: North American CMBS Property Evaluation Methodology
- CMBS: North American CMBS Single Borrower & Large Loan Rating Methodology
- Structured Finance: Global Structured Finance Counterparty Methodology
- CMBS: Methodology for Rating Interest-Only Certificates in CMBS Transactions
- ESG Global Rating Methodology