DBRS Confirms All Ratings on Natixis Commercial Mortgage Securities Trust 2018-ALXA

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates (the Certificates), Series 2018-ALXA issued by Natixis Commercial Mortgage Securities Trust 2018-ALXA as follows:

-- 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 (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of this transaction since issuance. The loan is secured by Centre 425 Bellevue, a 356,909-square foot Class A LEED Silver-certified office building located in downtown Bellevue, Washington, approximately ten miles east of Seattle. The condominium interest includes 98.3% of the leasable square footage within the 16-storey structure, in addition to the entirety of the eight-level underground parking garage. The loan is sponsored by RFR Holdings LLC and Tristar Capital, whose principals serve as guarantors for the transaction. The property is currently 100.0% occupied by Amazon.com, Inc. (Amazon) and Starbucks Corporation (Starbucks), both investment-grade-rated tenants, with Amazon accounting for 99.4% of the net rentable area. In 2017, Amazon executed a 16-year triple net lease that extends well beyond the ten-year loan term to September 30, 2033. Loan proceeds of $266.1 million, inclusive of $57.6 million of mezzanine debt, and $71.7 million of borrower equity were used to finance the acquisition of the subject for a purchase price of $313.0 million, fund upfront reserves and cover closing costs. The loan is a ten-year fixed-rate interest-only mortgage loan with an anticipated repayment date structure and final loan maturity in 2033.

As at the June 2018 rent roll, Amazon paid an average triple net rent of $27.44 per square foot (psf). Amazon’s rental rate escalates by 2.25% annually, and the lease was structured with a free rent period from October 2017 to May 2018, which was funded from the upfront free rent reserve of $10.9 million at issuance. The rent abatement is reflected in the lower in place rental rate, as of June 2018, compared with the initial base rental payment of $34.63 psf. A Q4 2018 Reis report for office properties showed average asking rents of $41.21 psf and average vacancy of 9.1% for the Bellevue/Issaquah submarket compared with the Q4 2017 Reis data of $38.30 psf and 10.6%, respectively. As a result of the free rent period, the loan reported a Q2 2018 debt service coverage ratio (DSCR) of -0.08 times (x) compared with the DBRS term DSCR of 1.69x, which considered leases in place with credit given to future rent steps over the ten-year term. As the free rent period has burned off, the subject performance should stabilize in 2019 once a full year of rental revenue is realized from Amazon.

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 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 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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