DBRS Confirms Ratings on 225 Liberty Street Trust 2016-225L

DBRS, Inc. (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates issued by 225 Liberty Street Trust 2016-225L as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS’s expectations at issuance. The transaction closed in February 2016 and is interest only (IO) for the entire ten-year term. The $900.0 million fixed-rate, whole mortgage loan consists of a $778.5 million trust loan, evidenced by a $337.5 million senior trust note, a $441.0 million junior trust note and three companion loans totaling $121.5 million.

The underlying loan is secured by the leasehold interest in a Class A 44-story office property located in Lower Manhattan, excluding the leasehold interest in the retail component. The subject is the largest of four towers that make up Brookfield Place, a mixed-use office development encompassing 7.1 million square feet (sf) of office space and roughly 340,000 sf of lifestyle-oriented retail and public space. The property is subject to a long-term ground lease with the Battery Park City Authority, the annual rent under which is fixed at $5.1 million through its June 2069 expiration date.

According to the Q2 2016 financials, the debt service coverage ratio (DSCR) was 0.98 times (x), representing a decrease from the DBRS underwritten figure of 1.45x. The decline is entirely attributable to free rent periods provided to three tenants: Time, Inc. (Time), Hudson’s Bay Company and D’Amato & Lynch. At issuance, an $80.8 million reserve was established to cover the rental payments for these tenants. According to the servicer’s reporting, there was approximately $32.0 million remaining in reserve as of January 2017, which will fund the remaining of Time’s free rent period through December 2017, as all other free rent periods have now burned off. When including the disbursements from the reserve for the Q2 2016 reporting period, the implied DSCR is above 2.0x. Also noted at issuance were ongoing tenant improvements, with approximately $72.8 million in work outstanding. The servicer has advised DBRS that the work is substantially complete, with approximately $3.0 million left of work to be completed.

As of the June 2016 rent roll, the collateral was 94.6% occupied with an average in-place rental rate of $56.10 psf compared with 93.5% and $57.04 psf, respectively, at issuance. The largest tenants are Time (27.7% of the net rentable area (NRA); expiring in December 2032), Bank of New York Mellon (13.4% of the NRA; expiring in Decmber 2034), Bank of America (13.1% of the NRA; expiring in September 2020) and OFI Global Asset Management (12.0% of the NRA; expiring in September 2028). No leases mature in the next 12 months. According to CoStar, the World Trade Center submarket reported an average occupancy rate of 90.4% with average asking rental rates at $54.62 psf for comparable office properties.

The loan benefits from strong sponsorship provided by Brookfield Property Partners L.P., which has a significant presence in New York City. Its office portfolio consists of 12 total properties encompassing nearly 20 million sf, including seven properties in the Lower Manhattan submarket comprising 13.4 million sf.

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

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

The applicable methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on our website under Methodologies.

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