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

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-225L (the Certificates) issued by 225 Liberty Street Trust 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 has remained in line with DBRS’s expectations since issuance. The loan is secured by a 2.4 million square foot (sf) 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 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 whereby the annual rent is fixed at $5.1 million through its June 2069 expiration date. The $900.0 million fixed-rate whole 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 notes totalling $121.5 million. The transaction is interest only (IO) for the entire ten-year term.

According to the Q3 2018 financials, the loan was reporting an annualized debt service coverage ratio (DSCR) of 1.77 times (x); however, when accounting for normalized below-the-line leasing and capital expenditure costs, the loan is reporting an implied annualized Q3 2018 DSCR of 1.63x compared with the YE2017 figure of 1.54x and the DBRS issuance figure of 1.45x. The net cash flow (NCF) increase was driven by a 4.3% increase in effective gross income, largely a result of contractual rent increases for two tenants. NCF is expected to increase further as four tenants, representing 44.8% of the NRA, had contractual rent increases in Q3 and Q4 2018.

According to the September 2018 rent roll, the property was 92.9% occupied at an average rental rate of $57.33 per square foot (psf) gross compared with the September 2017 rent roll figures of 92.9% and $55.14 psf gross, respectively. The five largest tenants represent 75.5% of the net rentable area (NRA), four of which are investment grade. These tenants include Time Inc. (27.6% of the NRA; expiring in December 2032), the Bank of New York Mellon Corporation (rated AA (low) with a Positive trend by DBRS; 13.4% of the NRA with expirations ranging from February 2031 to December 2034), Bank of America (rated AA (low) with a Positive trend by DBRS; 12.9% of the NRA with expirations ranging from September 2020 to September 2022), OFI Global Asset Management, Inc. (12.0% of the NRA; expiring in September 2028) and Hudson’s Bay Company (9.6% of the NRA; expiring in December 2032). According to the Q3 2018 CoStar market report, the World Trade Center submarket reported an average vacancy rate of 13.3% with an average rental rate of $62.24 psf gross compared with the Q3 2017 figures of 12.2% and $56.30 psf gross, respectively.

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 is an 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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

The principal methodology North American CMBS Surveillance, which can be found on dbrs.com under Methodologies & Criteria. 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.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

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