DBRS Confirms Ratings of Independence Plaza Trust 2018-INDP

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-INDP issued by Independence Plaza Trust 2018-INDP as follows:

-- Class A at AAA (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)
-- Class X-ECP at B (high) (sf)
-- Class X-ENP at B (high) (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)
-- Class HRR at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which closed in June 2018 and consists of a $675.0 million seven-year interest-only (IO) fixed-rate loan, secured by a 1.5 million-square-foot (sf) mixed-use residential and commercial complex located in Manhattan’s Tribeca neighborhood. The collateral consists of three 39-story apartment towers and connecting townhomes, totaling 1,328 units (1.2 million sf), in addition to 300,000 sf of commercial space. According to YE2018 financials, the debt service coverage ratio (DSCR) was 1.35 times (x) compared with the DBRS Term DSCR derived at issuance of 1.49x. The slightly depressed YE2018 DSCR is reflective of a 11.3% decrease in net cash flow (NCF) over the DBRS NCF figure derived at issuance, primarily due to the increase in management fees and operating expenses related to payroll and benefits.

The property was originally built in 1975 under the Mitchell-Lama Housing Program of New York State, an affordable-housing initiative for lower- and middle-income families. The property exited the program in June 2004, at which time the borrower offered the Landlord Assistance Program to any tenants not qualifying for the Section 8: Enhanced Vouchers program. Management has been able to increase value by renovating rent-regulated apartments that are vacated and re-leasing them at market rents following a significant renovation. The borrower intends to continue this strategy as units turn over. As of the December 2018 rent roll, the residential portion of the property was 96.6% occupied at an average rental rate of $4,590 per unit. According to the Q1 2019 Reis market report, the average asking rent for the West Village/Downtown New York Metro submarket is $4,631 per unit with an average vacancy rate of 3.3%, in line with the subject property.

According to the March 2018 rent roll (most recent on file with DBRS), the commercial portion of the property was 95.6% occupied at an average rental rate of $22.73 per square foot (psf). Patriot Parking Inc., the largest commercial tenant, representing 75.6% of the commercial net rentable area (NRA), leases the entire 550-space parking garage through August 2024 at a rental rate of $18.83 psf. According to online searches conducted by DBRS, it appears Best Market (7.3% of the commercial NRA) vacated upon its September 2018 lease expiration and Public School 150 (6.2% of the commercial NRA) will be vacating upon its July 2019 lease expiration. The borrower plans to spend $5.6 million to renovate these two retail units, which is expected to allow for an increase in current rents to approximately $200 psf from $22.70 psf.

Classes X-CP, X-NCP, X-ECP and X-ENP 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.

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. 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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