DBRS Morningstar Assigns Provisional Ratings to Benchmark 2021-B25 Mortgage Trust Amazon Seattle Loan-Specific Certificates

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Amazon Seattle Loan-Specific Certificates issued by Benchmark 2021-B25 Mortgage Trust:

-- Class 300P-A at AA (low) (sf)
-- Class 300P-B at A (low) (sf)
-- Class 300P-C at BBB (low) (sf)
-- Class 300P-D at BB (low) (sf)
-- Class 300P-E at B (high) (sf)
-- Class 300P-RR at B (high) (sf)

All trends are Stable.

The Amazon Seattle Loan-Specific Certificates are secured by the fee-simple interest in Amazon Seattle as well as its leasehold interest under a parking lease covering certain spaces at an adjacent parking garage. Amazon Seattle is a newly redeveloped, 774,412-sf, Class A office building in the heart of the Seattle, Washington CBD and is composed of approximately 680,215 sf of office space and 94,197 sf of retail space. The property was originally constructed in 1929 as the flagship location of prominent Seattle-based department store the Bon Marché and has since been granted landmark status by the city of Seattle. The building continued to function in the same capacity as the Macy’s building until 2017 when the property’s seller performed a three-phase, comprehensive transformation to convert it into office space for Amazon. The property is currently undergoing a retail repositioning that will include retail, entertainment, and food options that will enhance Amazon’s amenity offerings. Amazon intends to fully occupy the property in 2021 with 4,000-5,000 employees, solidifying its commitment to the location.

The seller recently completed a transformative repositioning of the property that focused on re-imagining the interior office, retail, common areas, amenities, and building infrastructure. In connection with the redevelopment, $160 million was invested into the property as part of Phase I and II to complete (i) a rebranding of the project from a Macy’s department store, (ii) an enhanced, integrated lobby with collaborative meeting and work spaces, (iii) a full seismic retrofit, (iv) high-end, first generation, creative build-outs, (v) new elevator cabs, (vi) new building infrastructure including HVAC and electrical, (vii) new skylights creating more natural light, (viii) a cutting-edge conference center, (ix) secured bicycle storage, (x) new men’s and women’s locker rooms with showers, (xi) new restrooms throughout the entire project, and (xii) a rooftop deck with views of Elliott Bay and the Cascade Mountains. Following the completion of Phase III encompassing Amazon’s final expansion and conversion, the entire project will have received a total renovation in excess of $225.0 million by the seller with Amazon reportedly contributing an additional $250 psf on its overall space.

Approximately 95.4% of the property’s base rent is derived from Amazon, which is investment grade rated by Moody's (A2), Fitch (A+), and S&P (AA-). The property is 87.8% occupied by Amazon (95.4% of base rent), which leases 100% of the office space subject to a NNN lease through May 2033 with three five-year renewal options. As of April 2021, the property is 92.2% leased to three tenants, Amazon, Knot Springs, and Victrola Coffee, with a WA remaining lease term of 12.3 years.

During the initial nine-year term of the loan, the property’s rollover profile is exposed only to Victrola Coffee, which represents only 0.3% of the NRA and 0.3% of base rent. The WA remaining lease term at the property is 12.3 years, which results in a stable, long-term cash flow stream with contractual rent increases built into Amazon’s lease.

The property is in one of the most desirable submarkets in Seattle, the Seattle CBD office submarket, which is the metro’s largest office submarket in terms of inventory. The greater Seattle office market has approximately 214 million sf of rentable building area, while the Seattle CBD has approximately 36 million sf. The average market rent for Class A office properties in the Seattle CBD is $45.61 psf. The Westlake Village Transit Center, which is directly below the property, offers access to the Seattle retail district from key mixed-use and residential zones such as Belltown, South Lake Union, and Capitol Hill.

The ongoing Coronavirus Disease (COVID-19) pandemic continues to pose challenges and risks to virtually all major commercial real estate (CRE) property types and has created uncertainty about future demand for office space, even in gateway markets that have historically been highly liquid. Despite the disruptions and uncertainty, the collateral has been largely unaffected and Amazon is current on all lease obligations. Approximately 99.6% of the occupied sf and 99.6% of the base rent was paid in February and March 2021. One tenant, Victrola Coffee, representing approximately 0.3% of the total NRA, requested and was granted rent relief for the months of April through July 2020, and the abated period was extended for a total of 12 months through March 31, 2021.

The Amazon lease includes a clause that permits Amazon to terminate the lease for certain Phase III expansion premises known as Level 1 (17,649 sf, 2.3% of NRA), and New Lobby (5,929 sf, 0.8% of NRA) the if the respective space is not completed by January 31, 2021 for Level I, either not delivered or not completed by February 28, 2022, for the New Lobby. DBRS Morningstar has determined that this risk is negligible, but not nonexistent, given the current status of construction at the property. Approximately 90% of the expansion space has a nearly 12-month cushion before Amazon would have any right to terminate any individual phase.

The $455 million whole loan is composed of six promissory notes: five senior A notes totaling $234.9 million, one junior B note of $155.1 million (the Amazon Seattle Trust Subordinate Companion Loan), and a mezzanine loan of $65 million. One senior A note totaling $90 million will be contributed to the BMARK 2021-B25 mortgage trust. The Amazon Loan-Specific Certificates will total $155.1 million and will be collateralized by only the Amazon Seattle Trust Subordinate Companion Loan. The remaining senior A notes will be held by the originator and may be included in future securitizations. The senior notes are pari passu in right of payment with respect to each other. The senior notes are generally senior in right of payment to the junior note.

The Amazon Seattle loan is structured with an ARD in April 2030 and a final maturity date in May 2033. In addition to penalty interest due on the mortgage and mezzanine loans after this date, all property cash flow after current debt service will be diverted away from the sponsor and toward amortizing the mortgage and mezzanine loan balance. This feature strongly incentivizes the sponsor to arrange takeout financing before the ARD date and therefore reduces maturity risk for the certificateholders.

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.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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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 the North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 2021), 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/375376.

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.

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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