DBRS Morningstar Confirms All Ratings of Manhattan West 2020-1MW Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates issued by Manhattan West 2020-1MW Mortgage Trust:

-- Class 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 BBB (low) (sf)
-- Class HRR at BB (high) (sf)
-- Class X at AAA (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The transaction is collateralized by a trophy 70-story Class A office building in the Hudson Yards submarket of Manhattan. The property is certified Gold in Leadership in Energy and Environmental Design and boasts panoramic views of the Hudson River to the west, midtown to the east, and the financial district to the south. The building was completed in July 2019 and is a component of Brookfield Property Partners' larger Manhattan West mixed-use development project.

The $1.8 billion whole loan is composed of six senior A notes totalling $1.150 billion, five junior B notes totalling $350 million, a senior mezzanine loan totalling $100 million, and a junior mezzanine loan totalling $200 million. Five of the six senior A notes and all of the junior B notes are securitized in this transaction for a total trust balance of $1.43 billion. Both mezzanine loans are held by third parties. The whole loan proceeds were used to refinance existing construction financing, return equity to the sponsor, fund upfront reserves, and pay closing costs. Based on the appraiser’s as-is valuation of $2.525 billion, the sponsor had approximately $725 million of unencumbered market equity remaining in the property at the time of issuance.

The building benefits from long-term, institutional-grade tenancy with a weighted-average remaining lease term of roughly 17 years, which has largely shielded the property from any short- or medium-term dislocations in the Manhattan office market resulting from the Coronavirus Disease (COVID-19) pandemic. There is virtually zero lease rollover during the loan term and existing tenants have contractual rent increases built into many of their leases. The earliest scheduled lease expirations of any of the major tenants (Skadden, E&Y, Accenture, NHL, McKool Smith, and W.P. Carey), which together are responsible for 94.5% of base rent, is almost eight full years after loan maturity. Nonetheless, the property's tenancy is heavily concentrated, with the top three tenants (Skadden, E&Y, and Accenture) accounting for 74.5% of the building's net rentable area (NRA) and 76.8% of base rent.

According to the March 2021 rent roll, the property had an occupancy rate of 93.8% with an average rental rate of $91.03 per square foot, which remains relatively unchanged from issuance. The building's superior asset quality and convenient location between the Hudson Yards development and Penn Station as well as commuter rail and subway access positioned to the east and west of the building make the remaining vacant square footage (approximately 128,000 square feet (sf); 6.2% of the NRA) an attractive option for a variety of tenants. In addition, the Hudson Yards submarket has also become one of the most desirable office locations in Manhattan as major space users have opted to move west and sign major leases.

The transaction benefits from strong, experienced institutional sponsorship in the form of a joint venture partnership between Brookfield Property Partners L.P. (BPY) and the Qatar Investment Authority. BPY, together with its affiliate Brookfield Asset Management, is one of the largest commercial landlords in New York City. BPY's core office portfolio includes interests in 134 Class A office buildings in gateway markets around the world totalling 72.6 million sf.

Although the coronavirus pandemic continues to pose challenges and risks to virtually all major commercial real estate property types, the Manhattan office market continues to show signs of recovery as employers focus on the return to office. Despite the disruptions and uncertainty throughout the pandemic, the collateral has largely remained unaffected. No tenants have requested rent relief or are currently subject to any kind of rent deferral.

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 the North American CMBS Surveillance Methodology (March 21, 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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