DBRS Morningstar Confirms Ratings on Citigroup Commercial Mortgage Trust 2020-555

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-555, issued by Citigroup Commercial Mortgage Trust 2020-555 as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance. The collateral for the underlying loan consists of the leasehold interest in a 52-story 598-unit apartment building completed in 2017 in the Hudson Yards neighborhood of New York. Hudson Yards, Times Square, the theater district, and many other tourist attractions are within walking distance to the east.

The total financing package for the property consists of a $400.0 million mortgage loan and a nontrust mezzanine loan of $140.0 million. The trust loan consists of a $213.4 million senior trust note and a $136.6 million junior trust note. In addition, there are $50.0 million of senior companion loan notes that are not part of the trust. The 10-year loan matures in December 2029 and pays interest only (IO) at a fixed rate of 3.52% for its entire term. The mezzanine loan has an interest rate of 5.60% with IO payments and a maturity in December 2029. The sponsor for the loan is Extell Development Company, a New York-based real estate development company founded by Gary Barnett in 1989, which has a current portfolio of more than 20 million square feet (sf).

In addition to the multifamily component, there is also 114,745 sf of retail and community facility space attached to the property, the bulk of which is occupied by the Success Academy charter school. The school bought the space from the borrower and thus owns its own space, with payments to the borrower for the purchase structured to mimic a lease.

The property also includes a small amount of retail space on the ground floor on the 10th Avenue side consisting of a nail salon, a small convenience store, and Kumon, an international private educational program featuring instruction in math and reading.

The property offers 150 affordable housing units, of which at least 60 must be reserved for residents who earn up to 40% of Area Median Income (AMI), 60 for up to 60% of AMI earners, and 30 for up to 120% of AMI earners. The property is subject to Section 421-A regulations, which govern affordable housing requirements. Under rent stabilization, rent increases are limited to a percentage determined each year by the Rent Guidelines Board. The property received a 35-year tax abatement for making affordable housing available to the community.

The DBRS Morningstar NCF derived at issuance was $25,184,875, with a DSCR of 1.76x on the whole loan. As of YE2020, the servicer reported NCF of $24,152,806 and a DSCR of 1.56x on the whole loan. The December 2020 rent roll showed an occupancy rate of 81.6% for the residential portion of the property compared with the September 2019 occupancy rate of 97.2%. It appears that nearly all of the affordable housing units remain occupied, while the fair market rental units have experienced the majority of the decline in occupancy. According to the rent collections report for the month of December 2020 received by the servicer in February 2021, 90% of the rent for December 2020 had been collected by February 4, 2021. In addition, the same report noted that rent charged for December 2020 had declined 16.9% from March 2020, roughly in line with the drop in occupancy since issuance.

The DBRS Morningstar value was $430.8 million at issuance, which was 51.3% lower than the $885.2 million appraised value provided in connection with the origination of the whole loan. The DBRS Morningstar valuation resulted in an LTV of 92.8% for the whole loan and a 125.3% LTV for the combined whole mortgage loan and mezzanine loan.

Although the property occupancy and DSCR have been adversely affected by the Coronavirus Disease (COVID-19) pandemic, the property is a high-quality residential project, located in a growing and vibrant neighborhood, with a very strong and experienced sponsor with knowledge and experience in the market and property type.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Class X certificates are interest-only (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 methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found at dbrsmorningstar.com/about/methodologies. 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 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.

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

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