Press Release|CMBS

KBRA Downgrades Four Ratings and Affirms All Other Ratings for COMM 2013-CCRE12

23 Oct 2024 | New York

KBRA downgrades the ratings of four classes of certificates and affirms all other outstanding ratings for COMM 2013-CCRE12, a $265.6 million CMBS conduit transaction, which has seven assets remaining in the underlying mortgage pool, all of which have been identified as K-LOCs. The rating actions follow a surveillance review of the transaction and are based on an increase in KBRA’s estimated losses and the likelihood of interest shortfalls continuing during the resolution of the transaction’s six specially serviced loans, four of which have been deemed non-recoverable (74.8% of the current pool balance).

As of the October 2024 remittance period, there are six specially serviced assets (95.8%), of which two are REO (14.3%), two are in foreclosure (9.2%), and two are matured and non-performing (72.3%). The details of the seven remaining loans are outlined below.

175 West Jackson (Largest, 51.9%, K-LOC, Underperform, Matured Non-Performing)

The loan is secured by a 1.5 million sf, Class-A office building located in the Chicago CBD. The development is comprised of one, 22-story building that features 21 floors of office space, as well as ground floor retail and a 250-space underground parking garage that is leased to an independent operator.
KBRA maintains the loan's K-LOC designation and its KPO of Underperform due to the loan’s delinquency and transfer to the special servicer for imminent monetary default during the November 2021 remittance period. The asset received a non-recoverable determination during the July 2023 remittance period. The loan’s current status is matured and non-performing with a March 2023 paid-thru date. According to the special servicer, a receiver has been appointed and it is discussing potential workout solutions with the borrower, including a property sale and a deed-in-lieu.
The servicer reported occupancies and DSCs are: 55% / 1.34x (FY 2023), 62.0% / 0.50x (FY 2022), 65% / 0.34x (FY 2021), 63.0% / 0.50x (FY 2020); at issuance these were 92.0% / 1.44x.
According to the CBRE Q3 2024 Chicago CBD Office Market Report, the Chicago CBD saw approximately 78,000 sf of net negative absorption in Q3 2023. This was the fifth-consecutive quarter of net negative absorption, and the CBD has experienced roughly 1.5 million sf of net negative absorption YTD. The subject asset is located in the Central Loop office submarket, where, according to the Q2 2023 Colliers Chicago Office Market Report, 32.4% of office space was available for lease as of Q2 2024, an increase from 31.7% as of Q2 2023. The Central Loop office submarket reported average rents of $41.13/sf as of Q2 2024, a decline from $41.43/sf as of Q2 2023.
An appraisal dated March 2024 valued the property at $120.0 million ($83 per sf), which is 70.7% below the $410.0 million ($282 per sf) value at issuance. As a result, the asset carries an ARA of $85.0 million, resulting in a cumulative ASER of $2.7 million. KBRA's analysis resulted in an estimated loss of $101.0 million (40.3% loss severity) on the whole loan balance of $250.5 million based on a value of $85.0 million ($59 per sf) which considers a distressed liquidation of the asset, the weak Chicago CBD office market, as well as, the ongoing capital needs required to retain and attract new tenants.

Oglethorpe Mall (2nd largest, 20.4%, K-LOC, Underperform, Matured Non-Performing)

The loan is secured by a 626,966 sf portion of a 953,760 sf regional mall located in Savannah, Georgia. The mall is anchored by JCPenney and Macy’s, which are part of the collateral, and Belk, which owns its improvements and the underlying land. The loan’s sponsor is Brookfield Property Partners (BPY).
The loan maintains its K-LOC designation due to its failure to pay off at maturity in July 2023 and its specially serviced status. Although JCPenney recently executed a five-year lease renewal at the property, KBRA maintains concerns regarding the long-term tenancy of Macy's and JCPenney. The property reported inline tenant sales of $377 per sf as of October 2022, the most recent available, down slightly from $390 per sf as of October 2019. The special servicer’s reported workout strategy is to dual track a loan modification and receivership/foreclosure.

The servicer reported occupancies and DSCs are: 95.0% / 1.38x (FY 2022), 94.0% / 1.35x (FY 2021); at issuance these were 95.0% / 1.75x. The loan had a July 2023 maturity date and carries a matured non-performing status. An appraisal dated April 2024 valued the property at $128.8 million ($205 per sf), which is 45.5% below the $236.5 million ($377 per sf) value at issuance. As a result, an ARA of $6.3 million was assigned in July 2024. There is no ASER. KBRA’s analysis resulted in an estimated loss of $7.6 million (5.8% estimated loss severity) based on a value of $75.4 million ($120 per sf), which considers a distressed liquidation of the asset.

Harbourside North (3rd Largest, 13.7%, K-LOC, Underperform, REO)

The collateral is now an REO asset consisting of the office and parking components of a 121,983 sf mixed-use building located in the Georgetown submarket of Washington, DC.
KBRA maintains the asset's K-LOC designation based on its REO status. After falling 30 days delinquent in June 2018, subsequent to the death of one of the loan's sponsors, the loan was transferred to the special servicer and foreclosure was completed in March 2019. The property became REO as of the April 2019 remittance. An appraisal dated June 2022 valued the subject on an As-Is basis at $0 due to the burden imposed by the subject’s ground lease and changes in market conditions. An ARA of $35.5 million was assigned on December 6, 2022, and the cumulative ASER amount is $2.3 million. The loan was deemed non-recoverable in June 2022. According to April 2024 special servicer commentary, the SPE of the trust holding the asset, filed for bankruptcy protection in March 2024 to facilitate the give back of the leasehold interest after mutually acceptable terms for give back could not be agreed upon with the fee owner. The bankruptcy court approved the rejection of the ground lease, and the ground lessor is now in control of the collateral. The bankruptcy case is to be closed in the near term. Upon close out of the bankruptcy, it is expected the loss to the trust will be realized.
Servicer reported occupancies and DSCs are: 15.0% / 0.17x (FY 2023), 74% / 0.68x (FY 2022), 71.0% / 0.78x (FY 2021); at issuance these were 94.0% / 1.26x. KBRA’s analysis resulted in an estimated loss in excess of the current outstanding balance of $35.5 million due to repayment of any outstanding advances and liquidation expenses.

The MAve Hotel (4th Largest, 7.2%, K-LOC, Underperform, Foreclosure)

The loan is secured by a 12-story, 72-key, limited-service, boutique hotel located on the northwest corner of Madison Avenue and East 27th Street within the Flatiron District of New York City’s borough of Manhattan.
KBRA maintains the loan's K-LOC status based on its foreclosure status as well as tenant and use concerns. KBRA initially identified this loan as a K-LOC due to the decline in financial performance from issuance through 2015 and the borrower’s agreement with the City of New York to provide housing for homeless families at rates significantly lower than the issuance ADR. The month-to-month contract with the NYC Department of Homeless Services ended at the end of 2020 and the property remains closed to the public. According to the servicer commentary, lender’s counsel filed a foreclosure action during the April 2022 remittance period. A summary judgement was granted and a referee was appointed during the December 2023 remittance period. According to recent special servicer commentary, the borrower has not been able to provide a viable workout proposal and the lender filed motion to confirm the referee report and final judgement, which is currently pending.
The servicer has not reported financials for this loan since 2020. An appraisal dated July 2023 valued the property at $19.0 million ($264,000 per key), which is 40.6% below the $32.0 million ($444,444 per key) value at issuance. As a result, the asset carries an ARA of $5.6 million, resulting in a cumulative ASER of $311,295 million. The loan was deemed non-recoverable during the August 2023 remittance period. KBRA’s analysis resulted in an estimated loss of $6.3 million (34.0% severity) based on a value of $10.9 million ($151,389/key), which considers a distressed liquidation of the asset.

The Crossings (5th Largest, 4.2%, K-LOC, Underperform)

The loan is collateralized by a 216,330-sf anchored retail center in Elkview, WV. The property's surrounding area is sparsely developed with the closest large town, Charleston, WV, located 14 miles away. The property had immediate access to I-79 and neighbors a La Quinta Inn & Suites.
KBRA continues to identify this loan as a K-LOC and maintains a KPO of Underperform based on performance concerns, prior modification, and prior status with the special servicer. A modification was executed in September 2022, which extended maturity from October 2023 to September 2030 and converted the loan to interest-only debt service payments at a modified rate of 6.240%, down from 6.340% at securitization. A significant payment was made in March 2023, reducing total other advances to zero from $5.7 million. The loan was returned to the master servicer during the January 2024 remittance period and was removed from the servicer’s watchlist during the September 2024 remittance period.
The servicer has not provided financials for this loan since 2016. A February 2023 appraisal valued the subject at $10.1 million ($47 per sf), a 46% decline from $18.2 million ($84 per sf) at issuance.
KBRA estimates a $5.4 million loss given default (49.7% loss severity) for the asset based on a value consistent with the most recent appraisal.

111 Mercer Street (6th Largest, 2.0%, K-LOC, Underperform, Foreclosure)

This loan is secured by the borrower's fee simple interest in a 2,000-sf ground floor retail condo property in New York, NY. The subject was constructed in 1900 and renovated in 2011 and is well located in the Soho neighborhood. The building is five stories with non-collateral residential condominium space above the retail space.
KBRA continues to identify this loan as a K-LOC and assigns a KPO of Underperform based on its foreclosure status and performance concerns. In August 2021, the loan was added to the servicer's watchlist due to concerns regarding the lease expiration of the property's sole tenant, Georgetown Cupcake, which subsequently vacated its space upon lease expiration in April 2022. The loan transferred to the special servicer in October 2022 and was designated a foreclosure status. A new sole tenant lease was executed with ME and EM Limited, which began paying rents in January 2024 and has a lease expiration in August 2028. Although the collateral is 100% occupied, the lender is continuing to proceed with foreclosure as of the current remittance period as the loan remains delinquent with an April 2023 paid-thru date. The loan was deemed non-recoverable during the August 2023 remittance period.
Servicer reported occupancies and DSCs are: 0% / 0.63x (FY 2022), 100.0% / 1.39x (FY 2021); at issuance these were 100.0% / 1.19x. An appraisal dated March 2024 indicated a collateral value of $7.2 million ($3,600 per sf), compared to $11.0 million ($5,500 per sf) at issuance. KBRA’s analysis resulted in an estimated loss of $142,666 (2.7% estimated loss severity).

Walgreens Marketplace Bel Air (7th Largest, 0.6%, K-LOC, Underperform, REO)

The asset is a 12,547-sf single-tenant retail building that was occupied by Walgreens at issuance. The property is located off Route-24 within close proximity to multiple shopping centers and the Harford Mall.
KBRA maintains the asset's K-LOC designation and assigns a KPO of Underperform based on its REO status, maturity default, and its transfer to the special servicer during the September 2023 remittance period. According to the special servicer, a foreclosure sale was held in April 2024 with the lender as the successful bidder and the lender is working to receive the recorded warranty deed. Walgreens went dark in September 2015 but continues to pay rent through its lease scheduled to expire in 2069. According to special servicer commentary, Walgreens can terminate its lease in 2034.
Servicer reported occupancies and DSCs are: 100.0% / 1.40x (TTM September 2023), 100% / 1.44x (FY 2022), 100% / 1.44x (FY 2021); at issuance these were 100.0% / 1.41x. KBRA’s analysis resulted in an estimated loss of $501,954 (34.9% estimated loss severity).

Details concerning the ratings changes are as follows:

Class A-M to BB (sf) from A- (sf)
Class B to CC (sf) from B- (sf)
Class C to C (sf) from CC (sf)
PEZ Certificates to C (sf) from CC (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 ratings and relevant documents, click here.

KBRA Downgrades Four Ratings and Affirms All Other Ratings for COMM 2013-CCRE12

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