DBRS Morningstar Confirms All Ratings on COMM 2020-CX Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates issued by COMM 2020-CX Mortgage Trust as follows:

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

All trends are Stable. The transaction performance remains in line with DBRS Morningstar’s expectations, with no material changes since last year’s issuance. The certificates are backed by $410.0 million portion of a $435.0 million whole loan. The trust loan is part of a split loan structure and comprises four senior notes with an aggregate principal balance of $270 million and one subordinate B note with a principal balance of $140 million. A $25 million companion loan, which is pari passu with the senior trust notes, is not part of the collateral for this transaction. The whole loan features a 10-year term through November 2030 with a four-year anticipated repayment date period following. The loan proceeds were used to refinance an existing $320.6 million loan, return $80.0 million of equity to the sponsor, fund upfront reserves of $31.6 million, and pay closing costs.

The loan is secured by the borrower’s fee-simple interest in a Class A life sciences office building in the Kendall Square submarket of Cambridge, Massachusetts. The building was completed in 2019 as one of the first components of the larger master-planned Cambridge Crossing Development (CX), which is currently being executed by the sponsor, DivcoWest. When fully built out, CX will consist of approximately 2.1 million square feet (sf) of science and technology space, 2.4 million sf of residential space, and 100,000 sf of retail space. In total, approximately 1.8 million sf of office and laboratory space is under construction, the bulk of which is leased.

The June 2021 rent roll showed an occupancy rate of 97.8%, with the two largest tenants, Philips Electronics (Philips) and Cerevel Therapeutics, LLC (Cerevel), accounting for 94.7% of the net rentable area (NRA). Phillips has made the subject its North American headquarters, leasing 80.4% of the NRA on various leases, all expiring in November 2034. Cerevel occupies 14.3% of the NRA on leases through February 2030. Ultimately, the building benefits from long-term, institutional-grade tenancy in place on long-term leases.

The loan is on the servicer’s watchlist for a low debt service coverage ratio (DSCR) stemming from rent abatements granted to Philips, which were reserved for at issuance. According to the servicer, the final disbursement from that reserve was made in April 2021 and the tenant has been paying full rent since May 2021. As a result of the free rent period for Phillips, the YE2020 net cash flow and DSCR were reported at $10.6 million and 0.89 times (x) respectively, compared with the issuer’s figures of $32.7 million and 2.75x. respectively.

The borrower sponsor for the transaction is a joint venture partnership between DivcoWest and the California State Teachers Retirement System (CalSTRS). DivcoWest, which manages $11.9 billion in assets, is an experienced developer, owner, and operator of real estate throughout the United States, with significant expertise in Boston, having invested in and managed more than 22 commercial properties in the area, including offices in the Seaport, Financial District, and East Cambridge submarkets. CalSTRS is the country’s second-largest public pension fund, with assets totaling approximately $262.5 billion.

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 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 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 the 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 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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