DBRS Morningstar Assigns Ratings to COMM 2015-3BP Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2015-3BP issued by COMM 2015-3BP Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class XA at AAA (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 12, 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upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings.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.
The deal is collateralized by a single loan secured by Three Bryant Park, a Class A, 1.2 million-square-foot (sf) office tower and adjacent retail building in Midtown Manhattan in New York. The 41-story building is located across from Bryant Park at the corner of West 42nd Street and Avenue of the Americas. The property comprises multiple condominium units, of which the borrower owns all of the retail space and most of the office space, excluding floors seven through 12. The building is a high-quality asset that has received more than $400 million in capital improvements between 2007 and 2014.

The 10-year $1.13 billion interest-only (IO) loan was used to facilitate the acquisition of the property. The sponsor is an entity controlled by Ivanhoe Cambridge Inc., a Canadian real estate company with assets around the world. There is a $215 million mezzanine loan that is coterminous with the trust mortgage.

The top five tenants occupy 78% of the total leasable space in the property. The property’s largest tenant, MetLife, Inc., occupies 35.7% of the net rentable area (NRA) through April 2029 with no termination options; however, the tenant vacated and subleased the space to various tenants including the building's new namesake, Salesforce.com, Inc., which has made Three Bryant Park its headquarters. Dechert LLP (Dechert), the second-largest tenant with 20.1% of NRA, has a lease expiration date in 2023, two years prior to maturity. Dechert’s rollover concern is mitigated by the tenant’s lease renewal option containing an 18-month notice period, giving the borrower time to market the space. Failure to renew during this time period will trigger a cash flow sweep. Other large tenants include Standard Chartered Bank, accounting for 9.2% of the space leased through 2026, and Instinet Group LLC, accounting for 8.8% space, with a lease expiration in August 2020. The retail space is anchored by a 42,818-sf Whole Foods, which provides an attractive amenity to the property and drives pedestrian traffic to the building. The 20-year lease expires in 2037.

While the property has maintained strong occupancy, the year-end 2019 NCF is down 10.8% from the Issuer’s NCF and is down 6% from DBRS Morningstar's assumed NCF. The main driver for the lower NCF is contractual rent increases for several large tenants have not yet risen to the level assumed at issuance.

The resulting NCF figure was $83.7 million and a cap rate of 6.5% was applied, resulting in a DBRS Morningstar Value of $1.29 billion, a variance of 42% from the appraised value at issuance of $2.20 billion. The DBRS Morningstar Value implies an LTV of 87.3%, as compared with the LTV on the issuance appraised value of 51.1%. The NCF figure applied as part of the analysis represents a 11% variance from the Issuer’s NCF, primarily driven by unrealized rent steps for a large number tenants.

The cap rate applied is at the middle end of the range of DBRS Morningstar Cap Rate Ranges for Midtown Manhattan office properties, reflective of the prime location and solid tenant base. In addition, the 6.5% cap rate applied is substantially above the implied cap rate of 4.3% 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 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.

Class XA 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 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 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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