DBRS Finalizes Provisional Ratings of COMM 2014-PAT Mortgage Trust

DBRS has today finalized its provisional ratings of the following classes of COMM 2014-PAT Mortgage Trust. The trends are Stable.

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (low) (sf)

The collateral for the transaction consists of the fee interest in a 36-story office tower in Midtown Manhattan. The subject property is located at 65 East 55th Street and spans the entire block between East 55th Street and East 56th Street, with public entrances on both sides. It is considered Class A with excellent views of Manhattan on the upper floors. The building consists of 579,694 square feet (sf) of office and storage space and 7,232 sf of ground floor retail space that is 100.0% occupied by Aquavit restaurant. As of July 2014, the property was 92.4% leased by 12 tenants, the largest of which is the law firm Paul Hastings LLP (Paul Hastings), which occupies 274,271 sf (46.7% of the net rentable area (NRA)). Both Paul Hastings and the second-largest tenant, Davidson Kempner Capital Management LLC (Davidson Kempner), will be leaving the subject property after their respective lease expiries in June 2016 and February 2016. Combined, these tenants encompass 54.7% of the NRA and 50.9% of the DBRS underwritten base rent. The loan, combined with both a senior and junior mezzanine loan totaling $135.2 million, served as acquisition financing for the loan sponsor, Blackstone Real Estate Partners VII, L.P. (Blackstone), which acquired the subject for $750.0 million. Including closing costs and $5.1 million of upfront reserves, there will be $209.5 million of cash equity behind the $425.0 million mortgage loan.

The loan sponsor, Blackstone, is considered strong as the firm is an experienced commercial real estate operator with a considerable presence in the Manhattan market. The cash equity of $209.5 million results in a loan-to-basis ratio of only 49.3%. To address the significant rollover occurring over the next two years, the loan is structured with a full cash flow sweep, which commenced at loan closing, as well as a $53.2 million payment guarantee from Blackstone to cover leasing costs and other building improvements associated with re-tenanting the Paul Hastings and Davidson Kempner spaces. DBRS anticipates that there will be approximately $17.1 million swept into the leasing reserve in addition to the Blackstone guarantee. DBRS estimates that re-leasing the collateral to its current 89.1% economic occupancy rate will cost $18.6 million. While this amount does not completely cover DBRS’s estimate of full leasing costs, the loan fundamentals are considered quite strong in light of the borrower’s cash equity investment to date and the sponsor’s guarantee.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

All classes are privately placed pursuant to Rule 144A.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.