DBRS Confirms All Classes of Natixis Commercial Mortgage Securities Trust 2018-TECH

DBRS, Inc. (DBRS) confirmed all ratings of the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-TECH issued by Natixis Commercial Mortgage Securities Trust 2018-TECH:

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

All trends are Stable.

The rating confirmations reflect the overall stabilized performance of the transaction since issuance in February 2018. The subject loan is secured by a 626,233-square-foot (sf) complex comprising seven Class B Silicon Valley office and research and development (R&D) buildings located in Santa Clara, California. The property was 100.0% occupied, and tenancy is concentrated between two tenants — NVIDIA Corporation (NVIDIA) and Huawei Technologies Co., Ltd (Huawei). Total loan proceeds consist of the subject $150.0 million senior mortgage note rated by DBRS in this transaction and $45.0 million of mezzanine debt. The senior note has a five-year initial term with two 12-month extensions.

The subject collateral is in a favorable location in Silicon Valley and has been 100.0% occupied by the same two credit tenants since 2009. NVIDIA and Huawei continue to occupy 60.7% of the net rentable area (NRA) and 39.3% of the NRA, respectively. Per the September 2018 rent roll, Huawei’s lease expires in 2027 and NVIDIA’s three leases expire in 2019, 2020 and 2023, respectively. The rent roll showed the NVIDIA lease expiration for 12.7% of the NRA as of September 2019, which is two years earlier than the term provided at issuance. DBRS has asked the servicer about the change in the reported lease expiry and requested information regarding leasing renewal prospects.

DBRS noted at issuance that NVIDIA completed a new 500,000 sf headquarters in 2017 across the street from the collateral, increasing the risk of the tenant consolidating at another location upon lease expiration. According to various news sources, NVIDIA’s master headquarters plan includes a three-phase 1.9 million sf development. The 500,000 sf building was Phase 1 of the master plan, and NVIDIA announced in May 2018 that the company will begin construction of 750,000 sf Phase 2 in summer 2019. DBRS continues to monitor the development plan, as NVIDIA could move operations from the subject collateral to its new owner-occupied facility.

According to the September 2018 rent roll, NVIDIA and Huawei paid a weighted-average base rent of $27.44 per square foot (psf). A Q3 2018 Reis report showed average asking rents of $44.99 psf and average vacancy of 18.8% for the Santa Clara/Sunnyvale submarket compared with the Q3 2017 Reis data of $42.03 psf and 17.4%, respectively. Market vacancy is high due to the introduction of 904,000 sf of new office product delivered throughout the first nine months of 2018. The subject property collects below-market rents primarily due to the blend of office and R&D property types.

Classes X-CP, X-EXT and X-F are interest-only (IO) certificates that reference 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.

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 most outstanding commercial mortgage-backed securities transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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 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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