DBRS Assigns Provisional Ratings to MAD Mortgage Trust 2017-330M

DBRS, Inc. (DBRS) has today assigned provisional ratings to the followings classes of Commercial Mortgage Pass-Through Certificates, Series 2017-330M (the Certificates) to be issued by MAD Mortgage Trust 2017-330M:

-- 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)
-- Class E at BB (sf)

All trends are Stable.

All classes will be privately placed. The Class X-A balance is notional.

The subject loan is secured by a Class A LEED Gold office building that enjoys a prominent location at the corner of Madison Avenue and 42nd Street in Midtown Manhattan. The property benefits from having full-block frontage along Madison Avenue from 42nd Street to 43rd Street, directly between Bryant Park, just two blocks west, and Grand Central Station, one block east of the subject. Additionally, with Grand Central Station nearby, the property has great access to multiple subway, train and bus lines. The property features a progressive tiered floor design that allows some units to have terraces, which is a highly desirable amenity in the market. At 39 stories tall and the slightly lower profile of many of the neighboring properties, the subject offers commanding views of the city from the terraces and higher floors as well as good light penetration throughout. However, a brand new mixed-use office development, One Vanderbilt, is currently under construction directly across the street from the subject. Besides adding 1.7 million square feet (sf) of inventory to the submarket, which will put pressure on occupancy rates, the new property will have a substantial impact on the views from the subject property and reduce the abundant natural light that currently penetrates the floorplates. DBRS believes the benefits of the new development should far outweigh any negatives.

The property greatly benefits from the sponsor’s recent $121.0 million renovation and repositioning that occurred in 2014. Post-renovation, the sponsor executed over 600,000 sf of new and renewal leases. The renovations have allowed the property to compete well with other Class A office product in the market and even led to the property’s winning the Pinnacle Award for best lobby redevelopment in Manhattan. The largest and most notable new tenant to lease space at the subject post-renovation was Guggenheim, which relocated its headquarters to the subject. Guggenheim occupies 28.2% of the net rentable area at an average in-place rent of $66.38 per square foot (psf) and a lease expiration that extends four years beyond the loan term. The overall DBRS weighted-average Base Rent of $71.81 psf is slightly below the appraiser’s $75.00 psf average asking rent for Class A office space in the Grand Central submarket, but recent leases are generally in line with market.

The sponsor, a joint venture between affiliates of Chadison (a wholly owned subsidiary of ADIA) and Vornado, has owned the property in one respect or another since 1979. While the acquisition price and the sponsor’s total cost basis in the property are unknown, the sponsor’s long-term ownership and recent large investment into the subject reaffirms its long-term commitment to the property. Vornado is one of the largest publicly traded real estate investment trusts in the United States with interests in approximately 24 million sf of commercial space within Manhattan alone.

Loan proceeds refinanced prior existing debt of $150.0 million, resulting in a large $330.7 million equity distribution to the borrower. CBRE, Inc. has determined the as-is value of the property to be $950,000,000 ($1,124.00 psf) using a 4.5% cap rate. The DBRS concluded value of $538.4 million ($634.00 psf) equates to a 43.3% discount to the appraiser’s value and is based on a 7.25% cap rate. The resulting DBRS loan-to-value (LTV) ratio of 92.9% is indicative of higher leverage financing; however, the DBRS Debt Yield of 7.8% is considered to be moderate and the subject’s appraised value of $1,124.00 psf is well supported by recent property sales in the area that range from $887.00 psf to $1,243.00 psf. Furthermore, the cumulative investment-grade-rated proceeds of $447.9 million reflect an extremely attractive basis of only $527.00 psf and the corresponding DBRS LTV on such proceeds is much lower at 83.2%. The seven-year loan is interest-only throughout the term.

For more information on this transaction and supporting data, please log into www.ireports.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS CMBS IReports platform.

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

The principal methodology is North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com under Methodologies.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E), which contains a description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form 15-E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.