DBRS Morningstar Finalizes Its Provisional Ratings on NYC Commercial Mortgage Trust 2021-909

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-909 issued by NYC Commercial Mortgage Trust 2021-909:

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

All trends are Stable.

Class X is an interest-only (IO) class whose balance is notional.

The NYC Commercial Mortgage Trust 2021-909 transaction is secured by the leasehold interest in 909 Third Avenue, a 32-story, 1.35 million-square foot (sf) Class A, LEED Gold certified office tower in Midtown, Manhattan. Built in 1968 and designed by Emery Roth & Sons, the property is prominently situated between 54th and 55th Streets, occupying the entire eastern block of Third Avenue. The office tower sits atop approximately 492,000 sf of flex industrial space, which serves as the United States Postal Service’s (USPS’) main New York City mail-handling facility and features a private loading dock on 54th street. The property is currently 97.9% leased to a diverse mix of 15 unique tenants with a weighted-average (WA) remaining lease term of approximately 10.9 years.

The property is anchored by high-quality national companies, with 66.1% of the total net rentable area (NRA) leased to investment-grade-rated tenants. The largest tenants at the property by contribution to gross rent are IPG DXTRA, a subsidiary of The Interpublic Group of Companies, which is rated Baa2, BBB, and BBB+ by Moody’s, Fitch, and S&P, respectively, and represents 17.1% of NRA and 22.8% of gross rent; AbbVie Inc.-owned pharmaceutical company Allergan Sales, LLC (as successor by merger to Forest Laboratories), rated Baa2, BBB+ by Moody’s and Fitch, respectively, and represents 12.5% of NRA and 18.4% of gross rent; Geller & Company, which represents 9.3% of NRA and 13.0% of gross rent; the USPS, which is rated AAA, AAA, and AA+ by Moody’s, Fitch, and S&P, respectively, and represents 36.5% of NRA, 11.2% of gross rent; and Morrison & Cohen LLP, which represents 4.8% of NRA and 8.3% of gross rent.

The first four floors and subgrade space of the property serve as the USPS mail-sorting facility. The mail-sorting facility is purpose-built distribution space for the USPS and features 90,000-sf floor plates, ceiling heights exceeding 20 feet, a private truck ramp on 54th Street that extends from lower level 2 to the second floor of the building, and five custom oversized freight elevators that extend throughout the space. The USPS has been a tenant at 909 Third Avenue since its delivery in 1968, has exercised five five-year renewal options since the expiry of its original 30-year lease in 1998, and has three five-year extension options remaining, bringing the fully extended lease expiration date to October 2038. The USPS pays a well-below-market gross rental rate of approximately $14.20/sf for this space. Thanks to the unique nature of the space, its mission critical location in the heart of Manhattan, its renewal history, and its severely below-market rents, DBRS Morningstar assumed that the USPS will continue to extend its lease through the final maturity date in October 2038.

The sponsor, Vornado, acquired the leasehold interest in 909 Third Avenue in 1999, whereby it pays a fixed $1.6 million (no escalations or resets) in ground rent through the fully extended term in 2063. Since the acquisition, Vornado has invested more than $184 million of capital into the property, including more than $46.9 million of base building upgrades. In both 2011 and 2019, the property underwent major capital improvement projects, including the renovation of the lobby and an outdoor public plaza, modernization of the elevators, the creation of outdoor amenity space on the fifth floor, and a full upgrade of the HVAC system.

The trust loan is part of a whole mortgage loan structure in the aggregate principal amount of $350 million that is composed of: (i) the trust loan, which is evidenced by the senior trust notes in the aggregate principal amount of $135.6 million and the junior trust notes in the aggregate principal amount of $114 million, and (ii) multiple companion loans that are pari passu with the senior trust notes in the aggregate principal of $100 million, which are evidenced by the companion loan notes. The companion loans will not be assets of the trust. The junior trust notes are generally subordinate in right of payment to the senior trust notes and the companion loan notes.

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.

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.

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.

Class X is an IO certificate that references a single tranche. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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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