DBRS Morningstar Confirms All Ratings on TMSQ 2014-1500 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-1500 issued by TMSQ 2015-1500 Mortgage Trust as follows:

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

All trends are Stable. The rating confirmations reflect the overall stable performance of the transaction since the last rating action, despite more recent challenges that have generally been driven by the effects of the Coronavirus Disease (COVID-19) pandemic.

The loan is secured by the borrower’s fee-simple interest in a 33-story Class A mixed-use building located within the Times Square Bowtie in New York City. There is a significant signage component to the property, which is regarded as one of the most prominently positioned advertising assets in the world— a factor of its prime location in Times Square. The whole loan of $505.0 million consists of $335.0 million of senior debt held within the trust and $170.0 million of mezzanine debt held outside of the trust. The loan is structured with a 10-year interest-only (IO) term, maturing in 2024.

The sponsor, TREHI, is a subsidiary of Tamares Group, a private investment company headquartered in London with more than $3.0 billion of assets under management. Of the 506,412 square feet (sf) of space, approximately 438,108 sf is designated as office space, with 44,010 sf as retail space and 24,294 sf as storage space.

Due to a decline in occupancy, the loan is currently on the servicer’s watchlist. According to the September 2021 rent roll, the departure of two large tenants, About.com, now known as Dotdash, (formerly 9.0% of total net rentable area (NRA)) and Pearl Cohen (formerly 3.0% of total NRA), is the primary driver related to the property’s occupancy decline. Pearl Cohen departed the property in February 2021 upon expiration of its lease, whereas Dotdash vacated prior to its May 2023 lease expiration.

As of the September 2021 rent roll, the occupancy rate within the office segment was 72.8%, an 18.0% reduction year-over year (YOY). In contrast, the retail segment continues to perform well, with a 93.5% occupancy rate, up 2.7% YOY. The consolidated occupancy rate across office, retail, and storage was 74.68% as of the September 2021 rent roll, a 14% decline YOY. Given the reduction in occupancy, net cash flow (NCF) declined approximately 10.4% between issuance and YE2020, with the annualized year-to-date (YTD) September 2021 financials indicating a further decline of 19.1% since issuance. Despite the declines in occupancy and cashflow, the loan continues to perform well, with a debt service coverage ratio of 2.22 times (x) as of September 2021—a marginal decline from the YE2020 figure of 2.46x.

The largest tenants at the property, Times Square Studios/Disney (TSS) and NASDAQ, occupy 15.3% and 10.4% of the total NRA, respectively. The remainder of the tenant roster is relatively granular, with no other tenant accounting for more than 4.0% of total NRA. The TSS lease runs through May 2024 with one remaining five-year renewal option that would push the existing lease expiry five years beyond the loan maturity to 2029. The bulk of the TSS space is configured for studio use and it is the filming location for Disney-owned ABC’s Good Morning America program. NASDAQ currently subleases its space to several tenants, with the existing subleases coterminous with Nasdaq’s original lease agreement, which expires in August 2024 and carries one remaining 10-year renewal option. Leases representing 7.7% of the NRA are scheduled to roll within the next 12 months.

The DBRS Morningstar NCF derived at issuance was not adjusted for this review and qualitative adjustments remain unchanged. Although there have been occupancy and cashflow declines, DBRS Morningstar believes the overall risk profile of the asset remains relatively stable from issuance and does not expect any interruption in the debt service payments over the near to moderate term. Given the property’s prime location, low DBRS Morningstar loan-to-value ratio, and billboard advertising potential (the appraiser noted the property is one of the most prominently positioned advertising assets in the world), the property’s operational performance will likely rebound in the short to medium term as the residual effects of the coronavirus pandemic dissipate.

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 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.

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.

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.

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

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