DBRS Assigns Provisional Ratings to Hudson Yards 2019-30HY Mortgage Trust

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates to be issued by Hudson Yards 2019-30HY Mortgage Trust:

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

All trends are Stable.

The Class X balance is notional.

This loan is secured by the Borrower’s condominium interest in 1.5 million square feet (sf) of Class A office space at 30 Hudson Yards. The Borrower’s condominium interest spans floors 16 through 51 of the 30 Hudson Yards building, a newly built 90-story, 2.6 million-sf office building located in New York City’s revitalized Hudson Yards district. Loan proceeds of $1.43 billion in addition to an equity contribution of $782.0 billion financed the Borrower’s nearly $2.2 billion acquisition of the subject collateral and funded $57.00 million of closing costs associated with the transaction. The $1.43 billion whole-loan amount is structured as a $1.12 billion Senior A-note and a $310.0 million Junior B-note. The Senior A-note is to be bifurcated into 29 pari-passu notes while the Junior B-note will be bifurcated into three pari-passu notes. This transaction will include $448.0 million of Senior A-note proceeds in addition to $310.0 of Junior B-note proceeds, representing a total trust balance of $758.0 million. The ten-year loan is full-term interest only (IO) and represents a relatively modest loan-to-cost ratio of 66.4% based on the whole-loan amount of $1.43 billion.

The collateral portion is 100.0% leased to WarnerMedia via a 15-year lease scheduled to expire in May 2034. WarnerMedia was acquired by AT&T Inc. (AT&T) in 2018 and AT&T will serve as the guarantor on WarnerMedia’s lease within the collateral. DBRS considers AT&T to be investment-grade rated, thereby providing enhanced cash flow stability to the transaction through the duration of the lease term.

The collateral is located along the easternmost boundary of the Hudson Yards district. Hudson Yards broke ground in 2008 and, upon completion, will include over 18.0 million sf of commercial and residential space across 26.0 acres. The Hudson Yards development has been supported by more than $4.0 billion of public investment, which includes a new No. 7 subway station located at the base of the 30 Hudson Yards building that positively enhances the commutability of the collateral. The Hudson Yards development is situated at the north-easternmost corner of New York’s Hudson Yards district, which was rezoned to include approximately 25.8 million sf of Class A office product, 20,000 residential units, 2.0 million sf of hospitality space, 1.0 million sf of retail space, a 750-seat public school and over 20 acres of open space.

The sponsor of the loan is a joint venture among Arizona State Retirement System (ASRS; 49.9%), two affiliates of Allianz SE (Allianz; 49.0%), and affiliates of The Related Companies, L.P. (Related; 1.01% ). ASRS is a state agency that administers a pension plan, long-term disability plan, retiree health insurance plans and other benefits to qualified government workers for the state of Arizona. The ASRS total fund is currently at approximately $39 billion in assets under management (AUM). Allianz is a European financial services company headquartered in Munich, Germany, with core businesses in insurance and asset management. The Allianz Global Investors division has approximately EUR 1,933 billion of AUM, EUR 1,408 billion of which are third-party assets, as of the first quarter of 2015. Related owns and manages a portfolio of assets valued at over $60.00 billion, including 32 luxury rental buildings with over 13,000 apartments, over 30 million sf of commercial space, 5,500 luxury condominium residences and approximately 60,000 affordable and workforce housing units located throughout the United States.

The DBRS-concluded value of $1,730,935,863 represents a 21.3% discount to the collateral’s appraised value and most recent sale price of $2.2 billion. The resulting DBRS loan-to-value (LTV) ratio of 82.6% is relatively high considering that DBRS rates the last dollar of debt at BBB (sf); however, DBRS believes that the subject’s superb location, excellent curb appeal and favorable market dynamic within a strong subsection of a gateway market and financial metropolis will provide stable levels of demand for the collateral through a variety of real estate cycles, thereby dampening downside volatility in years to come. The long-term and investment-grade strength of the collateral’s tenancy should also provide cash flow stability to the asset over the foreseeable future. Furthermore, despite the elevated DBRS LTV and high loan per sf of $977, there is approximately 35.0% of Borrower equity behind the loan amount and leverage in current market terms is relatively modest.

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.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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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