DBRS Confirms all Classes of COMM 2014-TWC Mortgage Trust

DBRS Limited (DBRS) confirmed the following 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 (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (high) (sf)

All trends are Stable.

The rating confirmations are reflective of the stable performance of the transaction. The loan is secured by two office condominium units, totaling 1.1 million square feet (sf) within the larger 2.86 million sf Time Warner Center, a Class A mixed-use complex in Manhattan, New York. The collateral consists of 19 floors in the South Tower and six floors in the North Tower and is located on the southwest corner of Central Park. The subject is considered to be a trophy-quality Class A office property offering unobstructed views of the park from all floors.

As of YE2016, the loan reported an amortizing debt-service coverage ratio of 2.37 times (x) and was 87.6% occupied by Time Warner Realty Inc. (Time Warner Realty); however, the tenant will be vacating the subject at lease expiry in January 2019, ahead of the fully extended loan maturity date in February 2020. Time Warner Realty’s departure from the subject was known at issuance and the loan was structured with an ongoing cash trap to be used as a future leasing reserve. As of October 2017, the reserve balance was confirmed at $50.0 million as the sponsor was required by the lender to fund the leasing reserve to this amount in order to exercise its first one-year extension option on the loan. According to the servicer, by the time Time Warner Realty’s lease matures, the leasing reserve is projected to have a balance of $80.0 million.

According to the servicer, the expected total leasing package required to re-let the space is estimated at approximately $149.1 million ($158 per square foot (psf)). Time Warner Realty’s departure presents a potential upside in rental income as the tenant’s triple net lease rate is $71.75 psf, which is below the current average gross rental rate of $81.19 psf reported by CoStar for Class A office properties greater than 1.0 million sf within a one-mile radius of the subject. Given the superb location and the expected investment necessary to re-let the space, however, DBRS expects that the sponsor will be able to secure tenants willing to pay full service gross rents in excess of $100.00 psf. DBRS took into account the anticipated leasing costs provided by the servicer and considered the projected reserve balance in its analysis.

Time Warner Cable (formerly 12.4% of the net rentable area) vacated its space at lease expiration in December 2016 and relocated to Stamford, Connecticut, where its parent company (Charter Communications) is located. The departure of Time Warner Cable marks the first vacancy at the subject since opening in 2004 and presents an opportunity for the sponsors to re-capture the space. The borrower enlisted Jones Lang LaSalle (JLL) as the broker to market the space and, although a replacement tenant has not been secured to date, the servicer notes that JLL and the borrower continue to pursue replacement tenants with productive tours, dialogue and preliminary negotiations with several prospective tenants. The sponsor anticipates spending approximately $153 psf in leasing costs to re-let the space. The tenant paid a gross rental rate of $104.02 psf at the end of its lease. Time Warner Center is widely regarded as one of the highest-quality assets in the city and competes well with the new Hudson Yards development that has attracted companies such as Amazon and Cooley LLP. It is also one of the most expensive properties developed in the United States. Given the location and views of Central Park, the collateral competes with a small number of highly desirable trophy properties in the submarket, justifying the rental premium when compared with submarket rental rates.

Given the excellent location and experience of the sponsors, DBRS expects the subject property to attract an array of potential tenants ahead of the Time Warner Realty Inc. lease expiration. Although the Hudson Yards development has had an impact on the office leasing market and overall supply in New York as a whole, the servicer notes that there are several differentiating factors that the subject benefits from, including office opportunities, delivery dates, Central Park views, amenity programs and, ultimately, location. In addition, the borrower has not been in direct negotiations with any tenants that subsequently selected the Hudson Yards development over the subject. The subject’s location is a historic, heavily-trafficked intersection in Manhattan from which all official distances from New York City are measured and should attract many long-term tenants.

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 remained $669 million of cash equity behind the $675 million mortgage loan. Sponsorship is considered strong, as all three sponsors have significant financial resources. In addition, Related has extensive experience and knowledge of the market as a commercial real estate developer and operator in Manhattan.

Classes X-CP and X-EXT are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS has provided updated loan-level commentary in the DBRS Viewpoint platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log into DBRS Viewpoint at viewpoint.dbrs.com.

The ratings assigned to Classes C, D, E and F materially deviate from the higher ratings implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given the uncertain loan-level event risk.

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.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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

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.