DBRS Morningstar Confirms All Classes of Morgan Stanley Capital I Trust 2014-150E

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-150E issued by Morgan Stanley Capital I Trust 2014-150E (the Issuer or the Trust) as follows:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BB (high) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
-- Class G at B (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 $525 million transaction is backed by the leasehold interest and subleasehold interest in 150 East 42nd Street, a 42-story Class A office tower totaling 1.7 million square feet (sf) located directly across from Grand Central Terminal in Midtown Manhattan. The tower occupies the entire block bounded by Lexington Avenue, East 42nd Street, Third Avenue, and East 41st Street. The total debt stack includes an unsecuritized $175.0 million mezzanine loan that is co-terminus with the 10-year first mortgage.

The property is currently anchored by investment-grade tenants Wells Fargo Bank, N.A. (Wells Fargo; rated AA with a Negative trend by DBRS Morningstar), which leases 437,088 sf (26.9% of net rentable area (NRA)) through 2028, and Mount Sinai Hospital, which leases 448,819 sf (26.2% of NRA) through 2046, that occupy a combined 53.1% of the property’s NRA. The third-largest tenant, Dentsu Aegis Network (Aegis), leases 206,175 sf (12.0% of NRA) through 2028.
While the loan benefits from minimal near-term rollover concerns, there are concerns about two of the three largest tenants: Wells Fargo and Aegis. In 2020, Wells Fargo relocated its Manhattan headquarters to 30 Hudson Yards after it signed a lease for 500,000 sf at that property. Furthermore, according to published reports, Aegis is expected to vacate the subject property prior to its 2028 lease expiration after the company executed a lease for 320,000 sf at the Morgan North Postal facility at 341 Ninth Avenue in West Chelsea. Aegis is expected to consolidate all of its New York City-based employees in that location starting in 2023. Mitigating these concern are the remaining years on both leases as well as the potential for additional revenue as both tenants are paying below market rents. Based on the December 2020 rent roll, Wells Fargo is paying $56.64/sf while Aegis is paying $59.00/sf. According to Reis, asking rents within the Grand Central submarket were $77.26/sf with a vacancy rate of 9.5% as of Q1 2021.

The property was 97% occupied as of YE2020 with a debt service coverage ratio (DSCR) of 1.78 times. Despite maintaining a stable DSCR, the YE2020 net cash flow is down 18% since issuance. While revenue is up 1.2% since issuance, operating expenses have increased by nearly 16%, mainly as a result of increases in insurance premiums, management fees, payroll, and general and administrative costs.

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.

Classes X-A and X-B are interest only (IO) certificates that reference 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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