DBRS Morningstar Confirms Ratings on All Classes of 20 Times Square Trust 2018-20TS With Negative Trends

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-20TS issued by 20 Times Square Trust 2018-20TS as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at B (high) (sf)
-- Class H at B (low) (sf)
-- Class V at B (low) (sf)

All trends are Negative because the underlying collateral continues to face performance challenges associated with the Coronavirus Disease (COVID-19) global pandemic. Additionally, there remains uncertainty surrounding the workout strategy of the defaulted noncollateral leasehold interest, which is also owned by the sponsor, Maefield Development.

The subject of this rating action is the financing (leased-fee mortgage) of $750.0 million, backed by a mixed-use property in Manhattan. The property’s ground lease and the leased-fee financing are senior to the leasehold interest and leasehold financing. In addition to the leased-fee mortgage, there is additional leased-fee financing in the form of a $150.0 million mezzanine note. The total leased-fee financing is $900.0 million. In addition to the leased-fee financing, there is a leasehold mortgage with an estimated balance of $1.1 billion. This mortgage is reported to be in default; however, the leased-fee financing (which is the subject of this rating action) remains current as of the September 2021 remittance.

The noncollateral leasehold interest went into default in December 2019 after the lender claimed that there were numerous undischarged mechanics liens against the property as well as a missed deadline to lease up the retail space by September 2019. News articles from July 2021 report that the foreclosure action is still ongoing and is making its way through the courts.

The underlying collateral is 20 Times Square, a mixed-use property comprising a 452-key Marriott Edition luxury hotel; 74,820 square feet (sf) of retail space (5,500 sf of which is non-revenue-generating storage space); and 18,000 sf of digital billboards. Because of the coronavirus pandemic’s effects and a dispute with the property owner related to the delinquent leasehold mortgage, the hotel was temporarily closed after only 10 months of operation but was re-opened in the fall of 2020. A significant amount of the retail space remains vacant as the NFL Experience, which occupied 43,130 sf, closed after only a few months of operation in 2019. At present, the only retail in place is the 8,440-sf Hershey’s Chocolate World flagship store; the remaining 66,380 sf is vacant.

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 loan-level 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.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

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