DBRS Morningstar Finalizes Provisional Ratings on CAMB 2021-CX2 Mortgage Trust, Commercial Mortgage Pass-Through Certificates

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the classes of CAMB 2021-CX2, Commercial Mortgage Pass-Through Certificates, as follows:

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

All trends are Stable.

The CAMB 2021-CX2 Mortgage Trust single-asset/single-borrower transaction is collateralized by the borrower’s fee-simple interest in 350 and 450 Water Street, two newly constructed, Class A LEED® Gold (targeted), life-sciences office buildings totaling 915,233 sf in the Kendall Square submarket of Cambridge, Massachusetts. 350 Water comprises 511,157 sf of lab/R&D space and 450 Water Street comprises 404,076 sf of office space. DBRS Morningstar takes a positive view of the credit characteristics of the collateral which will be the newest component to be delivered 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 17 buildings consisting of over 2.1 million sq. ft. of science and technology space, approximately 2.4 million sq. ft. of residential space and approximately 100,000 sq. ft. of retail space. The development of Cambridge Crossing is well underway with approximately 2.5 million sq. ft. completed or under construction and recent leases to Philips, Sanofi, and Bristol Myers Squibb.

In a post-coronavirus environment, DBRS Morningstar expects increased growth in healthcare spending, which is a key driver of the life sciences field. With this rise in spending, much of which is already devoted to disease prevention, cancer treatments, and chronic conditions, companies focused in these fields will continue to thrive. Given the specialized nature of these industries, coupled with advancements in medical and other technology, a skilled and educated workforce is necessary to sustain profitability of life sciences enterprises. DBRS Morningstar believes the most important factor for the long-term sustainability of cash flow is proximity to talent, which means access to research and educational institutions as well as other technology and medical centers, typically located in urban centers.

The building benefits from long-term, institutional-grade tenancy with an expected WA remaining lease term of 15 years, which DBRS Morningstar believes should largely shield the property from any short- or medium-term dislocations in the Cambridge office and life sciences market resulting from the ongoing Coronavirus Disease (COVID-19) pandemic. The property is 100% leased to Aventis Inc., a wholly owned subsidiary of the French healthcare conglomerate Sanofi. The property will serve as its North American research headquarters pursuant to a two 15-year NNN leases. Sanofi is expected to consolidate approximately 3,000 employees from a number of local offices into the property and it is anticipated that multiple business groups will operate at the property. Further, Sanofi intends to bring together around 400 employees across its sites at CX and in Lyon, France, to form a Center of Excellence dedicated to mRNA vaccine research at the property. Aventis’s laboratory space is at 350 Water (Parcel G), which can accommodate a mix of 60% laboratory and 40% office space, typical of other laboratory buildings in the market. The tenant’s office space is located at 450 Water (Parcel H).

Executed in late 2018, Aventis’s leases have a blended starting base rent of $71.50 psf, which is 22.4% below market office rents of $85.00 psf and 31% below market laboratory rents of $110.00 psf, as referenced by the appraisal. Additionally, Aventis’s WA rent represents a 24.7% discount to the sponsor’s average asking NNN base rent of $95.00 psf for similar product type in the greater CX. The limited lease rollover provides minimal opportunity to capture the upside during the 10-year initial loan term, but the property will likely benefit in the long run from increased rental revenue as leases expire and roll to market.

The properties are currently in the process of finishing construction and substantial completion is expected for the 350 Water Street building in the second quarter of 2022 and the fourth quarter of 2021 for the 450 Street building. Aventis Inc. is still undergoing the build out of its space at both properties. The 350 Water Street lease commenced on July 1, 2021 and for the 450 Water Street lease, the commencement is tied to substantial completion, with it occurring the later of (i) November 10, 2021 and (ii) the date that is 46 days prior to the substantial completion date for the base building work. Aventis Inc. does not have any termination rights in connection with the buildout of the space. Aventis Inc. does not have any termination rights in connection with the buildout of the space. The borrower will fund an obligations reserve at loan closing to cover outstanding TI obligations, project costs, and gap rent. While DBRS Morningstar believes that it is unlikely that an investment-grade tenant, such as Aventis, would sign a lease and then fail to take occupancy, there is still the potential for unforeseen circumstances to arise where the borrower would need to find a new tenant for this space.

The construction contract to build out Aventis’s tenant spaces and base building changes total $304.3 million ($595 psf) for Parcel G and $90.9 million ($225 psf) for Parcel H. Aventis is entitled to receive an approximately $139.8 million ($273 psf) tenant improvement allowance for Parcel G and an approximately $73.7 million ($82 psf) tenant improvement allowance for Parcel H. In total, the $395.2 million ($432 psf) tenant fit out contract and base building changes do not include any tenant investment for soft costs. Aventis is expected to invest approximately $181.7 million ($198 psf) into the property, not including tenant-specific FF&E.

The transaction benefits from strong, experienced institutional sponsorship in the form of a joint venture (JV) partnership between DivcoWest, the California State Teachers Retirement System (CalSTRS), and Teacher Retirement System of Texas (TRS). DivcoWest, which manages $13.7 billion in assets (as of June 30, 2021), is an experienced developer, owner, and operator of real estate throughout the U.S., 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 $312.2 billion as of September 30, 2021. Its investment portfolio is broadly diversified into nine asset categories, approximately 12.7% (approximately $39.8 billion) which is allocated towards real estate investments. Established in 1937, TRS provides retirement and related benefits for those employed by the public schools, colleges, and universities supported by the State of Texas. As of August 31, 2020, the agency is serving nearly 1.7 million participants and had assets under management of nearly $187 billion. TRS is the largest public retirement system in Texas in both membership and assets and is one of the largest public pension funds in the world.

DBR Investments Co. Limited (DBRI), Bank of America, N.A., JPMorgan Chase Bank, National Association, and 3650 Cal Bridge Lending, LLC originated the 10-year ARD loan that pays fixed-rate interest of 2.792000 % on an IO basis through the entire term of the loan. The whole loan features a 10-year term with a five-year ARD period following. The anticipated repayment date of the whole loan is expected to be the payment date in November 2031 and the scheduled maturity date of the whole loan is expected to be the payment date in November 2036 coterminous with Aventis’s final lease maturity. In addition to penalty interest due on the mortgage after this date, all property cash flow after current debt service will be diverted away from the sponsor and toward amortizing the mortgage loan. This feature strongly incentivizes the sponsor to arrange takeout financing before the ARD date, and therefore reduces maturity risk for the certificateholders.

The $1.225 billion whole loan is composed of 24 promissory notes: 16 senior A notes totaling $814 million and four junior B notes of $411 million. The CAMB 2021-CX2 mortgage trust will total $696 million and consist of four senior A notes with an aggregate principal balance of $285 million and the four junior B notes with an aggregate principal balance of $411 million. The remaining $529 million of senior A notes will be held by the originators and may be included in future securitizations. The senior notes are pari passu in right of payment with respect to each other. The senior notes are generally senior in right of payment to the junior note.

Class X is an interest-only (IO) certificates that references a single rated tranche. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

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