DBRS Morningstar Confirms All Classes of BBCMS 2018-TALL Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-TALL issued by BBCMS 2018-TALL Mortgage Trust:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (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 $1.3 billion transaction is backed by the borrower’s fee-simple interest in Willis Tower, a 3.9 million-square-foot (sf) Class A office building in the West Loop submarket of Chicago. Loan proceeds were used to pay off existing debt of $990.5 million, return $240.0 million of equity to the sponsor, fund reserves of $86.9 million , and cover closing costs of $16.7 million. The tower has four income-generating components that consist of office, retail, the Skydeck, and antenna revenue streams. While there was no additional debt at issuance, future mezzanine debt up to $150.0 million is permitted subject to hurdles. The loan had an initial term of two years with five 12-month extension options. The borrower has exercised two of its extension options, extending the maturity date to March 2022.

The loan is sponsored by an affiliate of Blackstone Group L.P. At issuance the sponsor planned to spend $498.6 million in capital expenditures (capex) on the office, retail, and Skydeck components through March 2022. The sponsor had already incurred $199.3 million of capex and leasing costs on the office, retail, and Skydeck components before the subject loan closed.

The majority of the planned renovations have been completed. In Q4 2019, the 300,000-sf retail and entertainment annex known as the Catalog opened. The Catalog is at the south entrance of the building and provides access to the Skydeck observation deck. The Skydeck reopened in April 2021 after undergoing an extensive redevelopment of the attraction’s lower level, which features an interactive museum that celebrates the history of Chicago’s neighborhoods and historical sites. The observation deck, situated on the 103rd floor, features four glass floor balconies extending from the tower called The Ledge.

As of the September 2020 reporting, the loan had reported a partial year debt service coverage ratio of 0.95 times. The drop in cash flow was likely due to the ongoing renovations of the Skydeck as well as the forced closure of the attraction during the Coronavirus Disease (COVID-19) pandemic. At issuance it was noted that the Skydeck generated $36.5 million in revenue and approximately $30.7 million in net operating income in 2017.

The largest tenant by square footage is United Airlines, which represents 27.7% of the property’s net rentable area as of the March 2021 rent roll. The subject location serves as the company’s headquarters. The property’s overall occupancy declined to 88.6% as of the March 2021 rent roll after United Airlines terminated 150,000 sf (three floors) of space. The reduction in space brought the building’s office occupancy down to 89.8% from 91.8% as of September 2020. The tenant has an additional right to terminate its lease effective December 31, 2023, with 24 months’ notice and the payment of a termination fee.

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.

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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