DBRS Confirms All Classes of MAD Mortgage Trust 2017-330M

DBRS Limited (DBRS) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-330M (the Certificates) issued by MAD Mortgage Trust 2017-330M:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction. The loan is interest only over its seven-year term and is collateralized by the fee and leasehold interests in an 849,372 square foot (sf) Class-A LEED Gold office property in Midtown Manhattan, New York City.

The subject property is located one block west of Grand Central Terminal and two blocks east of Bryant Park on the corner of Madison Avenue and 42nd Street. The 39-story building was originally constructed in 1965 and has a progressive, tiered floor design with the largest floorplates (approximately 42,000 sf) on floors two through 12, various setbacks on floors 13 through 21 and the smallest floorplates (approximately 9,700 sf) on floors 22 through 39, making it a great fit for smaller boutique firms. In 2014, the sponsor funded a $121.0 million renovation and reposition, which included a completely new exterior glass facade and reconfiguration/modernization of the lobby, which ultimately won the 2012-2013 Pinnacle Award for best redevelopment in Manhattan. This subject was also awarded an Energy Star label in 2008, 2013, 2015 and 2017 for its operating efficiency. Post-renovation, the sponsor executed over 600,000 sf of new and renewal leases.

According to the April 2018 rent roll, the property is 95.1% occupied at an average gross rental rate of $78.14 per sf (psf) compared with the issuance occupancy rate of 95.3% and base rent of $76.05 psf. The DBRS base rent at issuance was $71.81 psf. Rents are further delineated with the ground floor retail portion leased for an average rental rate of $291.46 psf and the office portion leased for an average rental rate of $73.36 psf. The three largest tenants, representing 51.2% of the net rentable area (NRA), are Guggenheim Partners (28.2% of the NRA; lease expiration of March 2028); HSBC Bank USA, N.A. (13.3% of the NRA; lease expiration of April 2020); and Jones Lang Lasalle, Inc. (9.8% of the NRA; lease expiration of November 2021). The subject property serves as Guggenheim Partners headquarters. There are no tenants with expiring leases in 2018 and six tenants with expiring leases in 2019, representing 4.1% of NRA. The fourth-largest tenant, Point72 (8.7% of the NRA), has announced plans to consolidate its offices into the new 55 Hudson Yards development and will likely vacate the subject at its lease expirations in 2020 and 2021. No new leases have been executed since issuance.

According to the Q1 2018 CoStar Office Report, the Grand Central submarket reported a vacancy rate of 8.3%, an availability rate of 10.0% and average gross rent of $67.00 psf across 24 Class A office properties. The five-year average vacancy rate, availability rate and average gross rent total 10.9%, 13.7% and $65.06 psf, respectively.

Trailing three-month March 2018 financials show the property generated a 2.16 times (x) debt service coverage ratio (DSCR), which is a 5.4% decrease from the DBRS Term DSCR of 2.25x. The slight decrease is due to $6.3 million of rent abatements provided to four tenants. A Free Rent reserve was established with the lender at closing and $1.44 million was disbursed to the borrower as of Q1 2018. The rent abatements will fully expire in 2020 and were taken into consideration by DBRS at issuance. Per the June 2018 remittance, the tenant reserve balance is $2.12 million, with $364,900 disbursed since origination.

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.

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