DBRS Confirms All Classes of COMM 2014-TWC Mortgage Trust

DBRS, Inc. (DBRS) has today confirmed all classes of COMM 2014-TWC Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction since issuance in February 2014. The collateral for the transaction consists of the fee interest in two office condominium units totaling 1.1 million square feet within a larger 2.86 million-square foot mixed-use complex. The collateral is located within both of the towers of the larger complex, with 19 floors in the South Tower and six floors in the North Tower. The collateral is currently 100% occupied by Time Warner Realty Inc. (Time Warner Realty) and Time Warner Cable. During the fully extended six-year loan term, there is 100% tenant rollover. Time Warner Realty, which occupies 87.6% of the net rentable area (NRA), will be leaving the subject property at lease expiry in 2019. Time Warner Inc., which is rated investment grade, guarantees the Time Warner Realty lease. Time Warner Cable maintains a lease through YE2016 with three five-year renewal options. While Time Warner Realty is known to be leaving at its lease expiry, Time Warner Cable may remain at the subject.

Although the loan structure allows for significant leakage of cash flow to the borrower during the loan term, as the monthly cash flow sweep test allows for $43.2 million annualized to be released to the borrower, DBRS anticipates that there will be significant cash available to re-lease the property. Based on an interest rate stress (capped at the 3% strike price of the interest rate cap) applied in each period and the expected cash flow from each period (which is highly predictable, given the investment-grade rating of the tenants and that 87.6% of NRA is leased on a triple net basis, eliminating cash flow erosion from expense increases), DBRS anticipates $67.1 million to be swept into the leasing reserve. This is based on the fact that the extension options can only be exercised if there is at least $50 million, $80 million and $110 million in the leasing reserve for the first, second and third extension options, respectively. The DBRS analysis assumes that the sponsor does not top up this reserve, but rather that the loan goes into default and all cash flow is swept. In reality, it is far more likely that the borrower will fund the reserve in order to protect its large cash equity investment. DBRS estimates that re-leasing the collateral to a 92.5% occupancy rate will cost $135.8 million. After giving credit to a portion of the $67.1 million to be swept prior to expiry of both leases, DBRS is deducting $78.8 million from the value against which its sizing hurdles are applied.

The loan served as acquisition financing for the loan sponsors: The Related Companies, L.P. (Related); Government of Singapore Investment Corporation; and Abu Dhabi Investment Authority, which acquired the subject for $1.31 billion. Including closing costs, there is $669 million of cash equity behind the $675 million mortgage loan. All three sponsors have significant financial resources. Related is an experienced commercial real estate operator with deep knowledge of the Manhattan market.

The subject is a trophy-quality Class A office property with an excellent location at the southwest corner of Central Park. As the property was built only 11 years ago in 2003, it is in very good condition and provides highly efficient, modern office space for high-end users. Unique attributes of the subject include Central Park views, shops and restaurants within the complex located in the Shops at Columbus Circle and extremely high ceiling heights on several floors. While Time Warner Realty uses 82,000 square feet as studio space, DBRS believes that this space can easily be transformed into traditional office space. The collateral has an average rental rate of $71.97 per square foot compared with the Columbus Circle submarket quoted average of $63.41, according to the Q3 2014 CoStar report. Given the subject’s strong location and high quality, DBRS believes the in-place rents to be sustainable.

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

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.

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