DBRS Morningstar Finalizes Its Provisional Ratings on DBGS 2021-W52 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-W52 issued by DBGS 2021-W52 Mortgage Trust (DBGS 2021-W52):

-- Class A at AAA (sf)
-- Class X-CP at AAA (sf)
-- Class X-EXT at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)

All trends are Stable.

The DBGS 2021-W52 Mortgage Trust single-asset/single-borrower transaction is collateralized by the borrower’s fee-simple interest in 51 West 52nd Street (also known as the Black Rock building), a 878,260-sf, Class A office high-rise in Midtown Manhattan. The collateral was originally constructed in 1963 as the headquarters for CBS Corporation and is prominently situated between West 52nd Street and West 53rd Street, occupying the entire eastern block of Sixth Avenue. Following the merger of CBS Corporation and Viacom Inc. in December 2019, the combined ViacomCBS (CBS) decided to sell the collateral to generate liquidity and trim operating expenses as the company consolidates its operations into the nearby 1515 Broadway. This transaction will provide affiliates managed by Harbor Group International, LLC (Harbor) with financing to acquire the collateral from CBS as part of a partial sale-leaseback.

As of loan closing, CBS executed a short-term lease for 283,917 sf of space at the property. The CBS lease term extends through various dates in August 2023 (when 230,767 sf of the CBS space is scheduled to roll) and August 2024 (when 53,150 sf of the CBS space is scheduled to roll), after which time CBS intends to fully vacate the property. Leases for the collateral’s three law firm tenants and the ground-floor Charles Schwab & Co., Inc. (Charles Schwab) are also scheduled to roll during the fully extended loan term. Collectively, CBS, the three law firm tenants and Charles Schwab represent 95.3% of NRA, and 100.0% of in-place leases (96.4% of total NRA) are currently scheduled to expire during the fully extended loan term. Harbor's investment thesis contemplates using the ongoing lease rollover as an opportunity to renovate, reposition, and remarket the collateral as a top-tier, boutique-tenant office property capable of achieving rents more closely in line with some of Midtown Manhattan’s premier trophy assets. Financing for the sponsor’s proposed capital investment plan, as well as ongoing re-leasing costs and interest and carry reserves will come from part of the whole loan structure, which includes the $420.0 million mortgage loan and a floating-rate, IO mezzanine loan with an original principal balance of $25.0 million and a maximum principal balance of $138.4 million.

The collateral was 96.4% occupied as of loan closing and has maintained a favorably stable average occupancy rate of 98.9% since 1996. However, the significant lease rollover scheduled through the fully extended loan term represents a risk to the collateral’s ongoing cash flow stability. While DBRS Morningstar has historically taken a favorable view on assets in desirable Midtown Manhattan locations such as the collateral’s, weakened tenant demand throughout the Midtown Manhattan office market in the wake of the Coronavirus Disease (COVID-19) pandemic reflects a degree of uncertainty related to post-pandemic office work trends. Fortunately, Class A vacancy rates have remained relatively low throughout the subsection of the submarket in which the collateral resides, showing the area’s strength and resilience relative to even the historically top-tier Midtown Manhattan office market. DBRS Morningstar takes a favorable view on the institutional-level sponsorship backing the transaction. The collateral’s relatively low in-place base rents compared with the already weakened submarket rents estimated by Reis and the appraisal further support the sponsor’s investment thesis.
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-CP and Class X-EXT are IO certificates that reference 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.

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.

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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 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. 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.

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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