DBRS Morningstar Finalizes Provisional Ratings on SUMIT 2022-BVUE Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2022-BVUE

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the classes of SUMIT 2022-BVUE Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2022-BVUE:

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

All trends are Stable. Class X-A is an interest-only (IO) class whose balance is notional.

The SUMIT 2022-BVUE transaction is secured by the fee-simple interest in The Summit, a 907,306-sf, LEED Gold and Platinum, Class A three-property office campus in the Bellevue, Washington, CBD. The property is situated on an 3.5-acre site, offering a unique urban campus environment that has helped attract and retain some of the region’s most prominent tenants. The Summit is strategically located two blocks from I-405, the Eastside’s primary interstate, and one block from both the Bellevue Transit Center and the Bellevue Downtown Light Rail Station (scheduled to open in 2023). The property also offers a subterranean interconnected parking garage with 2,194 stalls. The sponsor acquired The Summit in December 2019 from Hines Global REIT as the non-traded real estate investment trust was working to liquidate assets and distribute the sales proceeds to equityholders. At the time of the acquisition, the complex was 99.0% leased and comprised two existing office buildings with a third building (Summit 3) under construction, which was expected to be completed in Q3 2020 but was ultimately delayed until 2021 because of the Coronavirus Disease (COVID-19) pandemic.

The Summit campus is anchored by Amazon (AA/A1/AA), which occupies 374,220 sf and makes up 41.3% of NRA on a lease through August 2036. Overall, the property’s tenant roster comprises approximately 78.5% investment-grade tenancy by square footage including Puget Sound Energy Inc. (Puget Sound Energy) (223,820 sf; 24.7% of NRA; lease expiry October 2028; BBB/Baa3/BBB) and First Republic Bank (73,910 sf; 8.2% of NRA; lease expiry March 2032; A-/Baa1/A-). An additional 133,059 sf/14.7% of NRA is leased to WeWork and is 100% subleased by Amazon. Including the Amazon enterprise sublease from WeWork, approximately 93% of the property’s gross rents are derived from investment grade-rated tenants. As of January, 1 2022, the property was 98.2% leased with a WA remaining lease term of 10.7 years.

The transaction sponsorship is a 99%/1% joint venture between KKR Property Partners Americas (KPPA) and Urban Renaissance Group (URG). KPPA is indirectly controlled by KKR & Co. Inc. (KKR), a leading global investment firm with $459 billion in assets under management as of September 30, 2021. KKR manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, and credit, with strategic manager partnerships that manage hedge funds. KKR Real Estate is a global provider of equity and debt capital across real estate investment strategies. As of September 31, 2021, KKR’s team consisted of more than 135 dedicated investment and asset management professionals across nine countries, with more than $36 billion of assets under management. In 2019, KKR launched the firm’s first perpetual-life, open-ended core plus real estate fund, KPPA, which targets institutional-quality, stabilized real estate assets across the U.S. As of September 31, 2021, KPPA had $1.9 billion in net asset value across a diversified portfolio of industrial, multifamily, life sciences, and traditional office. URG was founded in 2006 and is a Seattle-based full-service commercial real estate company that is recognized as the top manager and operator of trophy commercial properties throughout the Bellevue, Seattle, Denver, and Portland markets. URG has been actively involved since the 2019 acquisition of the Summit campus and oversees all property and asset management responsibilities, including day-to-day operations of the Summit 3 construction process.

Barclays Capital Real Estate Inc. and Goldman Sachs Bank USA originated the seven-year loan that pays fixed-rate interest of 2.952% on an IO basis through the entire term. The $525 million whole loan is composed of 10 promissory notes: eight senior A notes totaling $327 million and two junior B notes totaling $198 million. The SUMIT 2022-BVUE mortgage trust will total $305 million and consist of two senior A notes with an aggregate principal balance of $107.0 million and the two junior B notes totaling $198.0 million. The remaining senior A notes will be held by the originator and may be included in a future securitization. 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 notes.

The sponsor for the transaction is partially using proceeds from the whole loan to repatriate approximately $129.3 million of equity. DBRS Morningstar views cash-out refinancing transactions as less favorable than acquisition financings as sponsors typically have less incentive to support a property through times of economic stress if less of their own cash equity is at risk. Based on the appraiser’s as-is valuation of $895.5 million, the sponsor will have approximately $370.5 million of cash and unencumbered market equity remaining in the transaction.

Class X-A is an interest-only (IO) certificate that references multiple rated tranches. 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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