DBRS Confirms All Classes of COMM 2016-667M

DBRS Limited (DBRS) confirmed all Classes of Commercial Mortgage Pass-Through Certificates, Series 2016-667M (the Certificates) issued by COMM 2016-667M, as listed below:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which remains in line with DBRS’s expectations at issuance. The transaction consists of a $214 million trust loan secured by the fee interest in one of Midtown Manhattan’s premier office buildings located at the corner of Madison Avenue and 61st Street, one block east of Central Park. The whole loan consists of an additional senior $40.0 million A-2 pari passu note to be possibly contributed to a future securitization. The property has 248,667 sf of office space as well as a half-block of prime Madison Avenue retail frontage totaling 16,681 sf. The loan has a ten-year term that is Interest-Only (IO) throughout.

The property was constructed in 1985 by Hartz Mountain Industries, Inc., a sponsor-affiliated firm, and has remained under the same ownership since. Hartz Financial Corporation (Hartz Financial), the loan’s sponsor, is wholly owned by The Hartz Group, Inc. (Hartz Group), a highly experienced commercial real estate owner and manager with an extensive real estate portfolio consisting of roughly 200 properties, totaling over 38.0 million sf.

At issuance, the property had a ten-year average occupancy rate of 96.3%; however, occupancy dropped when the former second largest tenant, Berenson, which had represented 11.5% of the NRA at an average rental rate of $99.64 psf, downsized its space significantly in November 2016 to 1.2% of the NRA. In conjunction with its downsizing, Berenson signed a new five-year lease through November 2021 at $175 psf. As of the March 2017 rent roll, the property was 81.6% occupied with an average rental rate of $166 psf. The former Berenson space remains vacant. According to CoStar, the Plaza District Submarket reported a gross average rental rate of $70.64 psf and a 9.7% vacancy rate for office properties as of September 2017. While the subject trails the submarket in terms of occupancy, the in place average rental rate is significantly higher, confirming its status as a premier property in the submarket. Given the experience of the sponsor and the attractiveness of the subject, it is likely the property will lease up to the submarket average vacancy rate, providing additional rental revenue upside.

The largest tenants at the property are Loews Corporation (Loews) (15.6% of NRA; lease expires 5/31/2022), Crestview Advisors (7.4% of NRA; lease expires 12/31/2018) and Sciens Management (Sciens; 5.8% of NRA; lease expires 7/31/2024). The subject serves as the headquarters for both Loews and Sciens.

At YE2016, the amortizing Debt Service Coverage Ratio (DSCR) was 3.29x, indicative of a 10.7% debt yield. In comparison, the DBRS term DSCR and debt yield are 2.93x and 9.4%, respectively.

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 principal methodology is CMBS North American Surveillance, which can be found on www.dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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