DBRS Morningstar Confirms All Classes of Hudson Yards 2019-30HY Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed all classes of the Commercial Mortgage Pass-Through Certificates issued by Hudson Yards 2019-30HY Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectation. The loan is secured by the borrower’s condominium interest in a 1.5 million square feet (sf) portion of Class A office space located in Manhattan. The borrower’s condominium interest spans Floors 16 through 51 of the 30 Hudson Yards building, a recently built 90-story, 2.6 million-sf office building located in New York’s revitalized Hudson Yards district. The building is LEED gold certified and is 100.0% leased to and occupied by WarnerMedia, an investment grade-rated tenant with a triple-net lease expiring in 2034. AT&T, the parent company of WarnerMedia, previously guaranteed the lease, which extends five years beyond the loan maturity of July 2029; however, according to a May 2021 CNBC article, AT&T announced plans to combine WarnerMedia with Discover, also an investment grade-rated entity. DBRS Morningstar has requested an update from the servicer whether Discover will also guarantee the WarnerMedia lease.

WarnerMedia’s lease is structured with 2.5% annual rent steps as well as four five-year extension options, each at 100% of fair market rent. In the fifth year of the lease, WarnerMedia has a contraction option for up to 10 floors or 404,325 sf at a cost of $24.0 million per floor (approximately $594 per sf (psf)) up to a maximum of $240.0 million. Furthermore, if it contracts its space by more than three floors, WarnerMedia will be required to pay an additional $125 psf of the contracted space in excess of the highest three floors, which will be held by the lender in escrow and released to the borrower when the contraction space is re-leased.

According to the December 2020 rent roll, WarnerMedia paid a rental rate of $76.88 psf, with the next scheduled rent step occurring in June 2021, increasing the rental rate to $78.80 psf. According to Reis, the subject is located within the Penn Station submarket. According to the Q1 2021 Reis report, office properties within this submarket reported an average asking rental rate of $61.00 psf and an average vacancy rate of 6.9%, with Class A office properties reporting an average rental rate of $89.18 psf. Based on a November 2019 NY Post article, Facebook has signed a lease encompassing 30 floors across three buildings including the subject property, and DBRS Morningstar has requested an update from the servicer regarding whether WarnerMedia is currently subleasing any of its space or has announced plans to sublease any portion of its space. As of YE2020, the subject reported an occupancy of 100.0% and a debt service coverage ratio (DSCR) of 2.28 times (x), compared with the DBRS Morningstar Term DSCR at issuance of 2.19x.

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.

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 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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