DBRS Morningstar Finalizes Provisional Ratings on MOFT 2020-B6 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) finalized provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates (the Certificates) issued by MOFT 2020-B6 Mortgage Trust (MOFT 2020-B6 or the Trust):

-- Class A at A (low) (sf)
-- Class B at BBB (low) (sf)
-- Class C at BB (low) (sf)
-- Class D at B (high) (sf)

All trends are Stable.

The collateral for MOFT 2020-B6 includes certain components of a $200.0 million first-lien mortgage loan on a 314,352-square-foot (sf) Class A office building in Sunnyvale, California. The 10-year, fixed-rate loan is interest only through the full loan term. Jay Paul Company constructed the asset collateralizing the transaction (commonly referred to as Building Six) in 2020 and leases it 100.0% to Google LLC (Google) through January 2029. Google’s parent company, Alphabet Inc., is rated investment grade. The asset is a component of the larger Moffett Park office campus, an approximately 519-acre office park formerly owned by Lockheed Martin Corporation (Lockheed) that has been redeveloped over the past 15 years to include and now house some of the world’s leading software, technology, and creative tenants including Amazon.com, Inc. (Amazon); Microsoft Corporation (Microsoft); Yahoo! Inc. (Yahoo); and Facebook, Inc. (Facebook). The collateral is one of six identical buildings that are 100.0% leased to Google. Together, the six buildings compose the 1.9 million-sf Moffett Place campus within the greater Moffett Park development.

The borrower sponsor for this transaction is an affiliate of Jay Paul Company, which is a privately held real estate development firm founded in 1975 and based in San Francisco. Jay Paul Company focuses on the acquisition and development of high-end build-to-suit office projects for large Silicon Valley technology firms. The sponsor has developed over 13 million sf of institutional office space for clients including Apple Inc. (Apple), Amazon, Facebook, Microsoft, Nokia Corporation, and Tencent Holdings Ltd. Several other sponsor-owned Moffett Park buildings have been securitized in previous DBRS Morningstar-rated transactions, such as MOFT Trust 2020-ABC and MFTII 2019-B3B4 Mortgage Trust. The collateral is one of 25 buildings developed by the sponsor within the Moffett Park office campus.

The whole loan comprises eight pari passu senior notes with an aggregate principal balance of $133.1 million and two junior notes with an aggregate principal balance of $66.9 million for a total whole loan balance of $200.0 million. The Trust consists of the two junior notes in addition to two of the nine senior notes, excluding the controlling senior note, for a total trust balance of $67.4 million. The remaining $132.6 million in senior notes was not securitized by the Trust and will be contributed to future transactions.

DBRS Morningstar’s outlook on the stability of Class A office space in and around San Francisco and further into Silicon Valley has historically been positive, given that the region is home to many of the world’s largest and fastest-growing technology companies including Google; Facebook; Amazon; Apple; Microsoft; Uber Technologies, Inc.; and Twitter, Inc. (Twitter). However, the ongoing Coronavirus Disease (COVID-19) pandemic continues to pose challenges and risks to virtually all major commercial real estate property types. Many technology companies have been at the forefront of establishing long-term remote-working policies as Twitter recently announced plans to allow employees to work remotely on a permanent basis and Facebook announced that as many as 50.0% of its employees could be working remotely within the next five to 10 years. In addition, Google recently announced its intention to allow employees to work remotely through July 2021 in response to the ongoing coronavirus pandemic, but it has not yet announced plans to implement such change on a permanent basis. The uncertainty surrounding such changes poses a potential threat to office demand in the technology-dominated San Francisco and Silicon Valley area, which could otherwise be balanced by continued growth of the area’s technology sector and historically low vacancy rates.

The Moffett Park campus has been one of Silicon Valley’s most successful corporate campus developments and has grown to include more than 9.0 million sf of office space occupied by world-renowned leaders in the technology industry, including but not limited to Google, Amazon, Microsoft, Lockheed, and Yahoo. The campus is particularly attractive to Google, which has its global corporate headquarters just a few miles away and leases a combined 1.9 million sf of space within the Moffett Place subcampus of the greater Moffett Park. Google also leases the nearby Moffett Federal Airfield from the National Aeronautics and Space Administration to conduct robotic and aeronautical research. The airport doubles as a private airport for Google’s fleet of corporate jets.

DBRS Morningstar takes a favorable view on Google’s continued expansion and investment in its growing footprint at Moffett Place, which indicates its commitment to increase presence and staffing in the area. DBRS Morningstar views large expansions by high investment-grade tenants like Google to be credit positive and believes that this enhances a building’s long-term cash flow stability.

With regard to the coronavirus pandemic, the magnitude and extent of performance stress posed to global structured finance transactions remain highly uncertain. This considers the fiscal and monetary policy measures and statutory law changes that have already been implemented or will be implemented to soften the impact of the crisis on global economies. Some regions, jurisdictions, and asset classes are, however, feeling more immediate effects. DBRS Morningstar continues to monitor the ongoing coronavirus pandemic and its impact on both the commercial real estate sector and the global fixed income markets. Accordingly, DBRS Morningstar may apply additional short-term stresses to its rating analysis, for example by front-loading default expectations and/or assessing the liquidity position of a structured finance transaction with more stressful operational risk and/or cash flow timing considerations.

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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2020), 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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