DBRS Morningstar Confirms All Classes of MFTII 2019-B3B4 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-B3B4 issued by MFTII 2019-B3B4 Mortgage Trust as follows:

-- Class A at AA (low) (sf)
-- Class B at A (sf)

All trends are Stable.

The loan is secured by the borrower’s fee-simple interest in Moffett Towers II – Building 3 and Building 4, two Class A office buildings totalling 701,266 square feet (sf). While not part of the collateral, the tenant also has access to and pays rent on 23,860 sf of allocated amenity space. The subject buildings are newly constructed LEED Platinum-certified Class A facilities with strong curb appeal. Loan proceeds of $590.0 million refinanced $408.9 million of existing construction debt, returned approximately $114.3 million of sponsor cash equity, funded $39.8 million of upfront tenant improvements/leasing commissions and free rent reserves, and covered closing costs of $27.0 million. The $590.0 million debt package is composed of a $350.0 million A note, a $155.0 million B note, and $85.0 million of mezzanine debt. This transaction contains the full $155.0 million B-note piece and only $5.0 million of A-note proceeds in the trust. The loan sponsor is Jay Paul Company, a leading real estate development and investment management firm.

The rating confirmations reflect the overall stable performance of the transaction. Since issuance, the collateral property has remained 100.0% occupied by Facebook, Inc. (Facebook) with a lease expiry in May 2034. As of the March 2021 remittance, the loan remains current and reported a YE2020 debt service coverage ratio (DSCR) of 1.50 times (x), a decline compared with the DBRS Morningstar DSCR of 2.01x primarily due to the straight-lining of Facebook’s rent over the term of the loan in the DBRS Morningstar analysis given company is a long-term credit tenant.

During March 2020, Facebook closed its offices due to the Coronavirus Disease (COVID-19) pandemic and, according to news articles published since that time, the office has generally remained closed since. However, Facebook recently announced plans to reopen starting in May 2021, with a 10.0% limited capacity for Bay Area offices. The company has noted capacity is expected to be limited through much of the remainder of the year, as well. At issuance, it was noted that the leases are structured with two 84-month extension options each at 95% of the fair-market value and have no termination options. The tenant’s base rent was $52.20 per sf (psf) with 3.0% annual increases for both collateral buildings, which commenced during June and May 2019. The tenant was given seven months of rent concessions to account for the interior build-out process, which included a total of $260 psf in tenant improvements.

The collateral is well located within the Santa Clara/Sunnyvale submarket, which reported an average asking rent of $48.61 psf and an average vacancy of 19.2%, as of a Q4 2020 Reis report. By YE2022, developers are expected to introduce approximately 959,000 sf of office space to the submarket, with the average vacancy rate expected to increase to 20.4%. Although the soft submarket dynamics, which will likely be exacerbated amid the effects of the coronavirus pandemic, are noteworthy, the subject transaction benefits from the long-term lease to a strong tenant and stable in-place cash flows for the collateral property that are expected to grow over the life of the loan with the scheduled rent steps for Facebook.

ESG CONSIDERATIONS
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.

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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