DBRS Confirms Rating of BWAY 2015-1740 Mortgage Trust

DBRS Limited (DBRS) confirmed the rating on the Commercial Mortgage Pass-Through Certificates, Series 2015-1740, Class A (the Certificates) issued by BWAY 2015-1740 Mortgage Trust (BWAY 2015-1740 or the Trust) at AAA (sf). The trend is Stable.

The rating confirmation reflects the healthy performance metrics for the transaction since issuance. The collateral consists of the fee interest in a 26-storey office and retail tower located at 1740 Broadway in Midtown Manhattan, New York City, with a loan balance of $308.0 million. The property is well located in the Columbus Circle submarket and, as noted at issuance, benefits from potential cash flow and value upside related to signage income and the underused bicycle storage space, which the sponsor plans to reposition. A January 2018 update, forwarded by the servicer, indicated that the borrower had not initiated any work on the rooftop signage to date, but planned to initiate an elevator modernization project this year.

The property comprises 572,645 square feet (sf) of office space, 16,587 sf of ground-floor retail space and 14,696 sf of storage space. Major tenants at the property include L Brands Inc. (L Brands; 69.3% of the net rentable area (NRA)) and Davis & Gilbert LLP (15.8% of the NRA), with lease expirations in March 2022 and December 2020, respectively. Although these tenants are scheduled to expire during the ten-year loan term, both tenants established critical operations for their respective companies at the subject over the years. The servicer’s February 2017 site inspection confirmed the collateral to be in good condition with no deferred maintenance noted.

According to the September 2017 rent roll, the property was 92.1% occupied (compared with the September 2016 occupancy rate of 98.2%) with no rollover risk within the next 12 months. The servicer noted that the decline in occupancy is a result of L Brands vacating the 14th floor and 15th floor, following its lease expiration for those respective spaces in November 2016, with Arcade Beauty assuming a portion of the space on the 14th floor. The replacement tenant represents 1.7% of the NRA on a 11-year lease that commenced in November 2016. In addition, the borrower recently executed two new leases with Thesys Technologies, LLC (Thesys) and RGN Management, LLC (RGN) for the remaining space on the 14th floor and 15th floor, collectively representing 6.1% of the NRA at above-market rental rates. Both tenants are scheduled to expire past the loan maturity and had lease commencement dates in October 2017 and November 2017, respectively. According to the servicer, Thesys assumed the remainder of the 14th floor, while RGN will be taking possession of the entire 15th floor in mid-February. Given the recent leasing activity, the property’s physical occupancy rate is expected to rebound to issuance levels within the near term.

The subject averages rental rates of $64.84 per square foot (psf) for the office space, which is in line with Class A office properties within the submarket that are reporting average rental rates of $65.64 psf, according to January 2018 CoStar Group, Inc. data. The Q3 2017 debt-service coverage ratio (DSCR) of 1.98 times (x) and YE2016 DSCR of 2.12x improved compared with the DBRS Term DSCR at issuance of 1.92x, and the loan benefits from a replacement reserve balance of $1.4 million ($2.32 psf) as of the January 2018 remittance.

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.

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