DBRS Confirms Ratings on TMSQ 2014-1500 Mortgage Trust

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates (the Certificates), Series 2014-1500, issued by TMSQ 2014-1500 Mortgage Trust:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

All trends are Stable.

The rating confirmations reflect that the current performance of the transaction remains in line with DBRS expectations at issuance. The transaction closed in October 2014 and is interest only for the entire ten-year term. The collateral consists of the fee interest in a 33-story office and retail tower located at 1500 Broadway in Times Square with a loan balance of $335 million and a subordinate senior mezzanine loan of $170 million. The property is well located in the Times Square Bowtie and benefits from potential significant cash flow and value upside related to the below-market rental rate of Time Square Studios (TSS)/Disney, the property’s largest tenant. The TSS space is discussed in greater detail below. The subject was originally constructed in 1974 and is currently undergoing a $6.3 million lobby renovation to upgrade and modernize the appearance of the asset. As of October 2015, the servicer noted that the interior renovation has been completed and that upgrades to the exterior of the property will be completed by year-end.

According to the March 2015 rent roll, the property is 94.0% occupied with minimum tenant rollover risk within the next 12 months as only tenants occupying 1.5% of the net rentable area (NRA) have lease expirations. Major tenants at the property include TSS (15.2% of NRA), The NASDAQ Stock Market, Inc. (10.4% of NRA) and About, Inc. (9.0% of NRA). These tenants’ leases expire in April 2019, August 2024 and May 2023, respectively. The retail component of the collateral is achieving an average rental rate of $195.03 per square foot (psf) with the office component reporting an average rental rate of $54.63 psf. TSS currently occupies space from the basement to the fifth floor, paying a blended rental rate of $156.29 psf. At issuance, DBRS estimated that this is below the blended market rental rate of $270.00 psf for its space, which could potentially provide an increase of $8.8 million in rental revenue. TSS has a ten-year extension option when its lease matures in April 2019, which DBRS expects the tenant to execute as the rental rate will likely remain below market. Nonetheless, total rental revenue would be projected to increase by $4.7 million based on the contractual rental increase for the tenant.

The subject’s occupancy rate has improved compared with issuance. DBRS underwrote in-place occupancy at 88.3% as DBRS did not recognize the outstanding letters of intent for Beecher Carlson Holdings, Inc. and Philanthropy New York. Both tenants have since executed their respective leases with commencement dates of November 2015 and February 2015, respectively, together occupying 4.2% of the NRA. In addition, two vacant units at issuance have been leased, representing 3.2% of the NRA, on lease terms between five and ten years. Although the Q1 2015 debt service coverage ratio (DSCR) of 2.30 times (x) has declined compared with the DBRS underwritten DSCR of 2.65x, the cash flow coverage remains strong and the loan benefits from an ending reserve balance of $5.4 million, which includes $2.6 million for tenant reserves as of October 2015.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are 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.

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.