DBRS Morningstar Assigns Ratings to CAMB Commercial Mortgage Trust 2019-LIFE

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

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class X-CP at A (sf)
-- Class X-NCP at A (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (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 July 24, 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upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings.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 $1.17 billion ($890 per square foot (psf)) trust mortgage loan is secured by the sponsor’s leasehold interest in eight life sciences office and laboratory buildings, totaling approximately 1.3 million square feet and located in Cambridge, Massachusetts. The senior mortgage loan has an initial two-year term with five one-year extensions options, resulting in a fully extended maturity date of December 9, 2025. The loan pays floating-rate interest of Libor plus 2.0444% on an interest-only (IO) basis throughout the term. Additionally, the capital stack includes mezzanine debt of $130.0 million ($99 psf) subordinate to and held outside of the trust. The mezzanine note pays an interest rate of Libor plus 4.1% on a full-term IO basis and is secured by the interest in the equity of the borrowing entities. Loan proceeds, along with $448.7 million ($341 psf) of borrower cash equity, facilitated the acquisition of the portfolio properties by the sponsorship group, Brookfield Asset Management (Brookfield). On December 7, 2018, Brookfield completed the acquisition of Forest City Realty Trust, Inc., whereby Brookfield Strategic Real Estate Partners III indirectly acquired the leasehold interest in the portfolio as part of the merger. The portfolio’s allocated purchase price was $1.6 billion ($1,233 psf).

All eight subject properties are located on the campus of the Massachusetts Institute of Technology (MIT) within the Cambridge submarket, which has limited available land for development and high barriers to entry. Cambridge has the largest concentration of life science researchers in the U.S. and strong historical occupancy driven by the high demand for specialized laboratory space by institutional tenants. The portfolio properties are leased to 15 individual tenants, with seven of the eight buildings fully occupied (four single-tenant properties), resulting in a physical occupancy of 99.0% and an economic occupancy of 97.0%. The subject properties have reported an average physical occupancy of 97.8% since 2008, which is indicative of a long-term, “sticky” tenant roster. The weighted-average remaining lease term of 8.7 years is 1.7 years beyond the fully extended loan term. Only 34.2% of the DBRS Morningstar base rent expires during the fully extended loan term, with no more than 12.8% expiring in any single year.

The portfolio benefits from a high concentration of institutional-quality tenants, with approximately 90.7% of the DBRS Morningstar base rent derived from public companies or major research institutions. Furthermore, 44.8% of the DBRS Morningstar base rent is tied to investment-grade tenants. The largest tenant, Millennium Pharmaceuticals, Inc., occupies 31.7% of the net rentable area (NRA) and plans to spend $11 million of its own funds to improve its space at the 40 Landsdowne property as part of its early renewal for its leases. Other large tenants include Blueprint Medicines Corporation (13.6% of NRA), Agios Pharmaceuticals (14.3% of NRA), and Brigham And Women’s Hospital (9.3% of NRA). Other investment-grade tenants include Takeda Vaccines, Inc. (6.0% of NRA) and Sanofi Pasteur Biologics Co. (4.1% of NRA). Most of the in-place tenants have invested a considerable amount of their own capital into their space build-outs.

Each property operates subject to a ground lease from MIT with maturity dates ranging from 2061 to 2076 and structured with base rent and percentage rent components. The base rent for each of the properties is fixed for the entire term of the ground lease while the percentage rent components are calculated based on the product of 15% and the gross revenues from the given property over a specified threshold. The threshold for each is subject to increases or decreases based on changes (on a dollar-for-dollar basis) in the deemed debt service due under the loan secured by the applicable property. The deemed debt service is calculated based on a maximum 75.0% LTV (i.e., no debt service in excess of 75.0% LTV is to be considered) and an assumed fixed debt service equivalent stipulated in accordance with the lease documents. Additionally, the ground lessor has a right of first refusal with respect to a sale of the properties by the borrower and/or future proposed mortgage or mezzanine refinancing.

The DBRS Morningstar net cash flow (NCF) derived at issuance was re-analyzed 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 $88.8 million and a cap rate of 7.14% was applied, resulting in a DBRS Morningstar Value of $1.2 billion, a variance of -25.7% from the appraised value at issuance of $1.7 billion. The DBRS Morningstar Value implies an LTV of 104.5%, based on the total financing, as compared with the LTV on the issuance appraised value of 77.7%. The NCF figure applied as part of the analysis represents a -6.4% variance from the Issuer’s NCF, primarily driven by tenant improvements and leasing commissions, vacancy, and replacement reserves.

The cap rate applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for office properties, reflecting the ground lease, strong market, investment-grade tenancy, and above-average property quality. In addition, the 7.14% cap rate applied is above the implied cap rate of 5.67% 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 7.0% to account for cash flow volatility, property quality, and market fundamentals.

Individual properties are permitted to be released with customary requirements; however, the loan’s stipulated release structure (105.0% release premium for the first 25.0% of the original loan amount and 110.0% release premium thereafter) is considered weaker than those in other rated single-borrower, multiproperty deals. Furthermore, the loan allows for pro rata paydowns for the first 20.0% of the unpaid principal balance for which DBRS Morningstar applied negative LTV adjustments through the “A” rating category.

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.

Classes X-CP and X-NCP 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 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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