DBRS Morningstar Confirms All Classes of VNDO Trust 2016-350P

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2016-350P issued by VNDO Trust 2016-350P as follows:

-- 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 (low) (sf)
-- Class E at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the unchanged credit view of the transaction, despite the loss of the underlying property’s largest tenant. Ziff Brothers Investments, LLC (Ziff; 50.3% of the net rentable area (NRA)) vacated upon its April 2021 lease expiration. At issuance, it was noted that Ziff was subletting about half of its space. Ziff’s overall exposure was reduced to 39% of the NRA as of the January 2021 rent roll after Vornado executed direct leases with several of Ziff’s subtenants including Citadel Securities and Square Mile Capital. Citadel Securities doubled it footprint at the property and now leases 120,000 square feet (sf) through December 2023, while Square Mile Capital signed a direct lease for 21,485 sf expiring in 2024. According to the most recent servicing commentary, the property had an economic occupancy of 98% with 31% of the property subleased. The loan was also structured with a springing cash flow sweep to mitigate Ziff’s lease rollover. The cash sweep triggered 18 months prior to the tenant’s April 2021 lease expiration and was subject to a cap of $25 million. In lieu of a re-leasing reserve, the sponsor posted a $25 million guaranty as contemplated in the loan documents.

The collateral for the trust consists of a $233.3 million portion of a $400.0 million whole loan amount, represented by four pari passu A notes ($296.0 million) and two subordinate B notes ($104.0 million). The trust collateral consists of two senior A notes totaling $129.3 million and the two subordinate B notes. The two remaining A notes, totaling $166.7 million, were contributed to the GSMS 2017-GS5 ($100.0 million) and JPMDB 2017-C5 ($66.7 million) transactions; DBRS Morningstar rates GSMS 2017-GS5.

The loan is secured by the first mortgage on 350 Park Avenue, a Class A office property in the Plaza District submarket of Midtown Manhattan, New York, between 51st and 52nd Streets. The 30-story property totals 570,784 sf, including four ground-floor retail spaces totaling 17,144 sf.

Despite Ziff vacating its space, the property could potentially benefit from an upside in revenue as Reis reported asking rents of comparable office properties within the Plaza District submarket at $100 per sf (psf) as of Q4 2020, which is higher than Ziff’s in-place weighted-average rent of $88 psf based on the January 2021 rent roll. Also, several news articles reported the sponsor is contemplating a redevelopment of the subject site with a 1,500-foot tower to be built once all existing leases expire. The plan would require the demolition of Vornado’s existing building on Park Avenue as well as the neighboring 23-story tower owned by Rudin Management.

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 interest-only (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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 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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