DBRS Morningstar Confirms All Ratings on Rosslyn Portfolio Trust 2017-ROSS, Removes UR-Dev. Status

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-ROSS issued by Rosslyn Portfolio Trust 2017-ROSS:

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

All trends are Stable. The ratings have been removed from Under Review with Developing Implications, where they were placed on November 14, 2019.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

Prior to the finalization of the NA SASB Methodology, the DBRS Morningstar ratings for the subject transaction and all other DBRS Morningstar-rated transactions subject to the methodology in question were previously placed Under Review with Developing Implications, as the proposed methodology changes were material.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

This transaction closed in June 2017 with an original trust balance of $500.0 million, with mezzanine loans in the amount of $142.1 million held outside of the trust. The collateral consists of seven office properties within the Rosslyn submarket of Arlington, Virginia. There are release provisions in place allowing for the three Class A office properties to be released at 115.0% of the allocated loan amount (ALA) and for the four Class B office properties to be released at 100.0% of the ALA; however, none of the properties have been released to date.

The underlying loan is floating rate and is interest only (IO) for the entire three-year term, with three one-year extension options available. The sponsor also has $110.6 million in additional mezzanine financing available to fund a portion of budgeted improvements and leasing costs of approximately $118.3 million. The trust loan is sponsored by a joint venture between US Real Estate Opportunities (89.0%), a fund formed by Goldman Sachs and two sovereign wealth funds, and an affiliate of Monday Properties (11.0%).

Per the most recent full year reporting from YE2018, the property reported an debt service coverage ratio (DSCR) of 1.39 times (x), representing an improvement from the YE2017 DSCR of 1.21x. The portfolio’s occupancy has remained relatively flat since issuance; however, the three largest properties by ALA, have reported stable or improved performance since issuance. Per the March 2019 rent rolls, 1101 Wilson (15.1% of ALA) is set to lease 45,000 square feet of space to new tenants in 2020, increasing occupancy to an implied estimate of 78.0% from 64.5%.

In the analysis for these rating actions, the DBRS Morningstar stabilized net cash flow (NCF) figure of $47.6 million derived at issuance was accepted and a cap rate of 7.50% was applied, resulting in a DBRS Morningstar Value of $634.0 million, a variance from the appraised value of $1.04 billion. The DBRS Morningstar Value implies an LTV of 118.7%, inclusive of mezzanine debt of $252.6 million, as compared with the LTV on the issuance appraised value of 72.4%.

The NCF figure applied as part of the analysis represents a 14.9% variance from the Issuer’s NCF, primarily driven by tenant improvements/leasing commissions, gross potential rent, and variable expenses.

The cap rate applied is in the middle end of the range of DBRS Morningstar Cap Rate Ranges for office properties, reflective of the property quality and desirable location of the properties within a growing submarket in proximity to Washington, D.C., and the committed capital expenditure dollars to enhance the asset quality of the properties. In addition, the 7.50% cap rate applied is above the implied cap rate of 5.38% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis totaling 2.75% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also made 2.5% negative adjustments to account for execution risk associated with the business plan to achieve stabilized occupancy across the portfolio of properties.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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 [email protected]

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 Morningstar 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.dbrsmorningstar.com or contact us at [email protected].

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