DBRS Assigns Provisional Ratings to J.P. Morgan Chase Commercial Mortgage Securities Trust 2019-OSB

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-OSB to be issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2019-OSB:

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

All trends are Stable.

All classes will be privately placed. The Class X-A and Class X-B balances are notional.

The loan is secured by the Borrower’s leasehold interest in Osborn Triangle, a collection of three Class A office and laboratory buildings totaling 676,947 square feet (sf) and a 650-space parking garage. The three buildings include 610 Main Street North (278,738 sf), One Portland Street (229,330 sf) and 700 Main Street (168,879 sf). Loan proceeds of $575.0 million in addition to approximately $581.9 million of cash equity financed the sponsors’ $1.15 billion acquisition of the collateral from the Massachusetts Institute of Technology Investment Management Company, which retains ownership of the underlying ground and a 5.0% interest in the collateral. The ten-year loan is full-term interest only (IO) and represents a relatively low loan-to-cost ratio of 49.9%.

The collateral is superbly located in the East Cambridge/Kendall Square submarket of the greater Boston metropolitan statistical area, less than 500 feet from MIT’s main campus. The East Cambridge/Kendall Square submarket is quickly becoming one of the most desirable submarkets for office and laboratory space nationally, offering a highly educated workforce, strong economic fundamentals and an increasingly dominant presence of life sciences and biotechnology companies. The properties were constructed to state-of-the-art office and laboratory standards between 2002 and 2016 and have been exceptionally well maintained. The properties additionally benefit from strong tenancy with 88.5% of total net rentable area, representing 91.5% of total DBRS base rent, leased to investment grade-rated tenants, such as Pfizer Inc. (Pfizer) and Novartis International AG (Novartis).

Both Pfizer and Novartis use their respective spaces at the property to house critical research and development (R&D) departments focused on using cutting-edge scientific research to pursue potential medical breakthroughs and new drug discoveries. In addition to providing proximity to MIT’s main campus and a highly educated labor force, the collateral offers both Pfizer and Novartis proximity to LabCentral, which leases 32,988 sf of space at the 700 Main Street property and subleases additional space from Pfizer at 610 Main Street North. LabCentral is an office and laboratory incubator space geared toward high-potential life science and biotechnology startups, many of which spill over from the neighboring MIT campus. By proximity, Pfizer and Novartis benefit from early exposure to the flourishment of new innovations in the life sciences and biotechnology spaces from startups at LabCentral. The synergistic relationship of tenants at the collateral is further evidenced by the presence of CRISPR Therapeutics AG, Casebia Therapeutics and KSQ Therapeutics, Inc., all of which sublease space from Pfizer at the 610 Main Street North building and operate collectively within the gene editing and functional genomics industries.

The sponsor for this loan is a joint venture between Harrison Street Real Estate Capital, LLC (Harrison; 94.5%), Bulfinch Companies, Inc. (Bulfinch; 0.5%) and MIT (5.0%). Harrison is a leading real estate investment management firm with a current portfolio of approximately $18.0 billion in assets. Harrison has acquired or developed over 900 properties since inception in 2006, bringing nationally recognized investment management experience to this transaction. Bulfinch focuses on the acquisition, management and leasing of commercial properties within the Boston area, offering specialized local expertise to the sponsorship team. MIT is a globally renowned leader in higher education and a crucial anchor to the collateral’s East Cambridge/Kendall Square submarket. Furthermore, as the seller of the collateral’s leasehold interest via this transaction, MIT’s continued interest in the property is indicative of its commitment to the innovative potential of the collateral’s R&D-focused tenancy.

The DBRS loan-to-value (LTV) ratio on the $575.0 million mortgage loan is somewhat high at 90.1%, considering that DBRS rates the last dollar of debt at BBB (low) (sf), although the excellent location, high level of curb appeal and favorable market dynamics bring stability to the value over time. Given the irreplaceable site adjacent to the MIT campus, DBRS believes that there would be very high levels of demand for this asset through a variety of real estate cycles, which will dampen downside volatility in the future. In addition, cash flow stability will be quite high over the foreseeable future as the majority of income at the three buildings is generated by investment-grade tenants that are either on long-term leases or below-market leases that expire during the term. Furthermore, despite the elevated DBRS LTV and high loan per sf of $849, there is approximately 50% cash equity behind the loan amount and leverage in current market terms is quite low.

Classes X-A and X-B are 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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrs.com.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS’s methodology, DBRS used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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