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

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

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 loan is secured by a 44-story Class A office property located in Lower Manhattan. 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.

The $900.0 million fixed-rate, whole mortgage loan consists of a $778.5 million trust loan, which is composed of a $337.5 million senior trust note, a $441.0 million junior trust note and three companion loans totaling $121.5 million. The transaction is interest only (IO) for the entire ten-year term.

According to the YE2016 financials, the debt service coverage ratio (DSCR) was 1.27 times (x), a decrease compared with the DBRS issuance DSCR figure of 1.45x. The net cash flow (NCF) is depressed from the DBRS issuance figure as a result of $80.8 million of free rent periods that were in place at issuance and were reserved for at closing. Three tenants were known to be given free rent periods at issuance, with two of these running out in 2016 and the third and largest expiring in December 2017. As the free rent periods have now ended, future NCF is expected to increase, as evidenced by the Q3 2017 DSCR reported as 1.55x. DBRS calculated an implied DSCR of 1.78x with the completion of these free rent periods.

According to the September 2017 rent roll, the property was 100.0% occupied with an in-place rental rate of $55.75 per square foot (psf), compared with the June 2016 rent roll which reported occupancy at 94.6% and an in-place rental rate of $56.10 psf. The occupancy at issuance was reported at 93.5%. 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 December 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 vacancy rate of 12.2% with average asking rental rates at $56.30 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 properties encompassing nearly 20 million sf, including seven properties in the Lower Manhattan submarket comprising 13.4 million sf.

Class X are IO certificates that reference multiple rated tranches. The IO rating mirrors the lowest-rated referenced 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.

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

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.

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 under Related Documents or by contacting us at info@dbrs.com.

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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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