DBRS Morningstar Confirms Ratings on SG Commercial Mortgage Securities Trust 2019-787E

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-787E issued by SG Commercial Mortgage Securities Trust 2019-787E as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (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. The transaction consists of a $187.5 million portion of a $410.0 million whole loan that is full term, interest only, and matures in 2029. The whole loan is divided into $175.0 million senior companion loans, a $117.5 million subordinate A note, and a $117.5 million junior B note. The subject securitization contains the $70.0 million A-1A note and the subordinate $117.5 million A-2 note. Noncontrolling A notes with a combined $105.0 million trust balance are included in the CSAIL 2019-C16, BBCMS 2019-C3, and CSAIL 2019-C15 securitizations.

The collateral consists of a 513,638-square-foot (sf), 10-story Class A mixed-use building with office as well as automotive retail showroom and service center space. The building is well located in Manhattan’s Automotive Row, which is also home to 20 other automotive dealers. The retail-auto showroom and service space is 100% leased to Jaguar Land Rover and Nissan/Infiniti, two high-quality tenants with initial lease terms that run three years beyond the loan’s maturity in 2029. Combined, the two tenants contribute more than half of the underwritten base rent.

In 2020, the third-largest tenant, Regus (99,337 sf; 19.3%, of the leasable space), vacated the property ahead of its 2030 lease expiration. Subsequently, the March 2021 rent roll shows that the Icahn School of Medicine at Mount Sinai (Mount Sinai) leased approximately 163,000 sf or 36.2% of the leasable space, which includes the space previously occupied by Regus, through 2054. Labs, outpatient clinics, and research space operated by the healthcare network will occupy three floors. About 36,000 sf will be built out for a research facility that will be used exclusively by scientist and inventor Neri Oxman. With this new tenant, the property is expected to reach full occupancy.

The December 2020 financials reported loan performance metrics that were weaker than the issuance levels. This was not surprising because, in addition to the loss of the third-largest tenant, two tenants were receiving rent abatements. However, those rent abatements will eventually shrink or burn off over the next several years, and the property has gained some positive momentum with the new long-term lease with Mount Sinai. Several online industry publications, including the Wall Street Journal, reported that this new lease could generate as much as $600.0 million in rental income over its 33-year term. This translates to approximately $18.2 million in rental income per year from Mount Sinai, which is well above the previous tenant’s yearly rental rate of $7.2 million. According to Real Estate Weekly, the borrower, The Georgetown Company, has obtained $100 million in financing to build out the Mount Sinai space, which is expected to be completed in 2024. DBRS Morningstar reached out to the servicer to confirm the terms of the new Mount Sinai lease, including rental rates, and is awaiting a response.

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 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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