DBRS Confirms Ratings of MAD Mortgage Trust 2017-330M

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-330M issued by MAD Mortgage Trust 2017-330M 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 (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. The loan is interest-only over its seven-year term and is collateralized by the fee and leasehold interests in an 849,372-square-foot (sf) Class A Leadership in Energy and Environmental Design Gold office property located at 330 Madison Avenue in Midtown Manhattan, New York.

The subject property is located one block west of Grand Central Terminal and two blocks east of Bryant Park on the corner of Madison Avenue and 42nd Street. The 39-story building was originally constructed in 1965 and has a progressive, tiered floor design with the largest floorplates (approximately 42,000 sf) on Floors 2 through 12, various setbacks on Floors 13 through 21 and the smallest floorplates (approximately 9,700 sf) on Floors 22 through 39, making it a great fit for smaller boutique firms. In 2014, the sponsor funded a $121.0 million award-winning renovation and reposition, which included a completely new exterior glass facade and reconfiguration/modernization of the lobby. Post-renovation, the sponsor executed over 600,000 sf of new and renewal leases.

Recent news reports have stated that Vornado (25.0% ownership interest) is in the process of selling its minority interest to the majority interestholder, Abu Dhabi Investment Authority (ADIA), as part of a transaction set to close in Q3 2019. According to a June 11, 2019, article by “The Real Deal,” the deal implies a total value for the asset of $900.0 million, down from the as-is appraised value at issuance of $950.0 million, with Vornado expected to cash out $100.0 million as part of the transaction. DBRS has requested the terms of the transaction, and the servicer has advised that, as of June 2019, a notice of permitted transfer has not been received. ADIA has held an ownership interest in the property for over 30 years and is one of the largest sovereign wealth funds in the world, with an estimated $700 billion in assets under management.

According to the April 2019 rent roll, the property was 94.5% occupied, with an average gross rental rate of $85.62 per square foot (psf) compared with the issuance occupancy rate of 95.3% and base rent of $76.05 psf. The DBRS Base Rent at issuance was $71.81 psf. The ground-floor retail portion and office portion had an average rental rate of $291.46 psf and $73.42 psf, respectively. The three largest tenants, representing 51.2% of the net rentable area (NRA), are Guggenheim Partners (28.2% of the NRA; lease expiration of March 2028); HSBC Bank USA, N.A. (13.3% of the NRA; lease expiration of April 2020); and Jones Lang Lasalle, Inc. (9.8% of the NRA; lease expiration of November 2021). The subject property serves as Guggenheim Partners’ headquarters. The fourth-largest tenant, Point72 Asset Management, L.P. (8.7% of the NRA), announced plans to consolidate its offices into the new 55 Hudson Yards development and will likely vacate the subject at its lease expirations in 2020 and 2021.

According to Q1 2019 Reis data, the Grand Central submarket reported a vacancy rate of 7.9% and average gross rent of $79.74 psf across all office properties. The five-year average vacancy rate was 8.8%, and asking rents are expected to grow by 3.3% within the next five years. The loan was structured with a leasing reserve funded monthly, with a balance of $1.4 million reported for June 2019.

As at YE2018, the servicer reported a debt service coverage ratio (DSCR) for the loan of 2.30 times (x), which is a 2.4% increase from the DBRS Term DSCR of 2.25x. According to the April 2019 rent roll, rent abatements have generally burned off since issuance. There was an upfront reserve in the amount of $3.4 million collected at issuance to fund these free-rent periods, and the June 2019 reporting confirms those funds have been fully disbursed. There is one remaining tenant, Park Agency, Inc., which represents less than a percent of the NRA on a five-year lease commencing in April 2019, that is currently in a free-rent period for an unspecified period.

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 the 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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