DBRS Morningstar Assigns Ratings to NYT 2019-NYT Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates issued by NYT 2019-NYT Mortgage Trust (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class X-CP at A (high) (sf)
-- Class X-EXT at A (high) (sf)
-- Class D at A (sf)
-- Class E at BBB (sf)
-- Class F at BB (high) (sf)

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about May 11, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

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.

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.

DBRS Morningstar has requested an update from the servicer regarding any potential request for relief, but has not received a response to date.

The transaction consists of a $515 million nonrecourse, first-lien mortgage loan backed by the borrower’s leasehold interest in floors 28 through 50 of the office component and the 738,385 square foot (sf) ground-floor retail component of The New York Times Building, a Class A office building at 620 Eighth Avenue in Manhattan’s Times Square submarket. German American Capital Corporation; Bank of America, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar); Barclays Capital Real Estate, Inc.; and Citi Real Estate Funding Inc. originated the mortgage loan, which has an initial term of two years and allows for five one-year extension options. The loan bears interest at a 1.856796% spread over one-month Libor, which will increase by 0.25% if the borrower exercises the fourth extension option. There is also a Libor cap of 3.50% to protect against interest-rate increases. The transaction includes $120 million of secured subordinate debt and $115 million of unsecured mezzanine debt with spreads of 3.25% and 5.25% over Libor, respectively.

The leasehold interest in the collateral is subject to a ground lease that runs through December 11, 2100, with an option to purchase in 2032 for $10.00. The collateral was 100% occupied by 13 tenants across 34 leased spaces as of December 1, 2018. Prominent tenants include ClearBridge Investments and the law firms, Covington & Burling LLP and Seyfarth Shaw LLP. The retail space generates a relatively small portion of the rent (approximately 3%) and is mostly leased to food-service tenants. Forest City Enterprises L.P., which is ultimately owned by Brookfield Property Partners L.P. (rated BBB with a Negative trend by DBRS Morningstar), is the loan sponsor.

The DBRS Morningstar NCF was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The resulting NCF figure was $43.5 million and a cap rate of 6.5%% was applied, resulting in a DBRS Morningstar Value of $669.9 million, a variance of 30.8% from the appraised value at issuance of $967.8 million. The DBRS Morningstar Value implies an LTV of 112.0%, as compared with the LTV on the issuance appraised value of 77.5%. The NCF figure applied as part of the analysis represents a -11.8% variance from the Issuer’s NCF, primarily driven by ground rent, step rent, and tenant improvement/leasing commission costs.

DBRS Morningstar applied a cap rate at the middle end of its Cap Rate Ranges for Manhattan office properties, reflecting the institutional quality and tier one market. In addition, the 6.5% cap rate DBRS Morningstar applied is substantially above the implied cap rate of 4.89% 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 3.5% to account for cash flow volatility, property quality, and market fundamentals.

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.

DBRS Morningstar notes that the above press release was amended on May 12, 2020, to include adjustments made to the DBRS Morningstar Value which was reduced to $669.9 million from $695.0 million, a variance of -30.8% from the appraised value at issuance of $496.0 million. The changes to the DBRS Morningstar Value had no ultimate impact on the ratings or trends previously issued on April 27, 2020.

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 www.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 www.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 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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