DBRS Confirms All Classes of Rosslyn Portfolio Trust 2017-ROSS with Stable Trends

DBRS Limited (DBRS) confirmed the Commercial Mortgage Pass-Through Certificates, Series 2017-ROSS, issued by RPT 2017-ROSS as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class X-CP at BB (sf)
-- Class F at BB (low) (sf)
-- Class HRR at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. This transaction closed in June 2017 with an original trust balance of $500.0 million, with mezzanine loans in the amount of $142.1 million held outside of the trust. The collateral consists of seven office properties in Arlington, Virginia. There are release provisions in place allowing for the three Class A office properties to be released at 115.0% of the allocated loan amount (ALA) and the four Class B office properties to be released at 100.0% of the ALA; however, none of the properties have been released to date. The underlying loan is floating-rate and is IO for the entire three-year term, with three one-year extension options available. The sponsor also has $110.6 million in additional mezzanine financing available to fund a portion of budgeted improvements and leasing costs of approximately $118.3 million. The trust loan is sponsored by a joint venture between U.S. Real Estate Opportunities (USREO) (89.0%), a fund formed by Goldman Sachs and two sovereign wealth funds, and an affiliate of Monday Properties (11.0%).

As of the year-end 2017 rent rolls, the portfolio was averaging an occupancy rate of 71.6%, up from 67.6% at issuance; a portion of the occupancy improvement is attributable to an increase in sponsor-occupied space, to 5.2% of the combined NRA at December 2017 from 0.6% at issuance. When excluding the sponsor-occupied space, the portfolio is reporting an average rental rate of $33.01 psf. Per Cushman & Wakefield’s Q1 2018 office market report, the Rosslyn submarket is reporting an overall vacancy rate of 27.6%, with an average asking rental rate of $47.76 psf. As noted at issuance, the submarket has been hit in recent years by the Base Realignment and Closure Act (BRAC) implemented by the Department of Defense, as well as the federal budget crises and sequestration seen in the past several years. These factors have reduced demand in the area significantly. At issuance, DBRS estimated a stabilized vacancy rate of 20.0% for the portfolio and noted the availability of additional mezzanine financing that could fund improvements and higher tenant improvement packages, a factor that should lead to an uptick in the property’s occupancy rate over the loan term.

The in-place debt service coverage ratio (DSCR) was reported at 1.21 times (x) for YE2017, in comparison to the DBRS Term DSCR of 1.64x (as derived at issuance and based on the DBRS As-Is NCF and a stressed interest rate of 5.2%). The variance of -51.0% between the servicer’s reported cash flow and the DBRS figure is largely attributable to a 14.6% decline in effective gross income as reported by the servicer, which is inclusive of a $10.1 million vacancy loss adjustment. DBRS believes this adjustment is partially attributable to rent abatements in place during the reporting period, but has asked for clarification. The servicer’s gross potential rent figure of $65.3 million is in line with the annual rental revenue implied by the December 2017 rent rolls. When excluding the vacancy loss figure included by the servicer, the in-place cash flow is slightly higher than the DBRS NCF figure, with an implied in-place DSCR of 2.39x.

Class X-CP is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation 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.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.
For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes loan-level data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

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.