DBRS Morningstar Confirms Ratings on BXP Trust 2017-CC

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-CC issued by BXP Trust 2017-CC:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BB (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 10-year fixed-rate loan is interest only (IO) throughout the entire loan term and is secured by Colorado Center in Santa Monica, California. The whole loan of $550.0 million consists of $298.0 million of senior debt and $252.0 million of subordinate debt. The subject transaction represents $98.0 million of the senior debt and the entire subordinate debt amount. The collateral is an office park consisting of six Class A buildings totalling 1.2 million square feet and a three-level underground parking garage on a 15.0-acre plot of land. The property is approximately 1.5 miles northeast of downtown Santa Monica, in the heart of the city’s media and entertainment area.

The office park was originally built in 1984 and underwent renovations in 2004 and 2018. The sponsor, Boston Properties, Inc., injected $18.0 million of improvements into the property in 2018 to improve the subject’s overall marketability within the submarket. In addition, the sponsor recently contributed approximately $30 million to upgrade the property’s common spaces, including the addition of a new gym and a food hall.

As of the rent roll dated September 30, 2020, the property was 97.8% occupied, which is higher than the YE2019 March occupancy rate of 95.7% and the issuance occupancy rate of 90.9%. The largest tenant is Hulu (22.1% of net rentable area (NRA)), which has a lease expiry in November 2021. Hulu operates its corporate headquarters at the subject and was noted at issuance to be interested in expanding into the Home Box Office (HBO) space, which represents 11.3% of NRA and was leased to HBO through March 2021. DBRS Morningstar has requested a leasing update from the servicer to determine if Hulu took over the HBO space or if there have been discussions regarding the tenant’s renewal plans for the November 2021 lease expiration.

Other large tenants at the property include Edmunds.com Inc. (Edmunds; 16.6% of NRA), with a lease expiry in January 2028, and Rubin Postaer and Associates (16.6% of NRA), with a lease expiry in June 2033. According to a LoopNet posting located by DBRS Morningstar as of April 2021, the building fully occupied by Edmunds was listed as available for sublease with a move-in date as early as December 2021, extending through the tenant’s lease expiry of January 2028. The subject serves as Edmunds’ corporate headquarters, but the sublease posting suggests that the tenant intends to vacate at some point in 2021. DBRS Morningstar has requested confirmation from the servicer.

According to the March 2021 loan-level reserve report, the loan reported $5.3 million held in tenant reserves. According to Reis, office properties in the Santa Monica submarket reported a YE2020 vacancy rate of 13.8%, an increase over the YE2019 vacancy rate of 10.0%.

According to the financials for the trailing nine months ended September 30, 2020, the loan reported an annualized debt service coverage ratio (DSCR) of 2.79 times (x), compared with the YE2019 DSCR of 3.05x and the DBRS Morningstar Term DSCR of 2.24x derived at issuance.

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.

Class X-A 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 issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 26, 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/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. 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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