DBRS Morningstar Assigns Provisional Ratings to COLEM 2022-HLNE Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-HLNE to be issued by COLEM 2022-HLNE Mortgage Trust (COLEM 2022-HLNE):

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

All trends are Stable.

The COLEM 2022-HLNE single-asset/single-borrower transaction is collateralized by the borrower’s fee-simple interest in Coleman Highline Phase IV, which consists of a newly built office property in San Jose, California. The office campus is made up of two Class A buildings totaling 657,934 square feet (sf), bifurcated between 603,363 sf of office space and 54,571 sf of amenity space. It is part of the larger 1.6 million-sf Coleman Highline, which includes seven office buildings, four amenity buildings, a hotel, and retail space.

The North San Jose single-tenant Class A market is home to some of the most prominent technology companies and financial institutions worldwide. Some of the area’s tenants are Apple, Cisco, eBay, Intel, Nvidia, Oracle, PayPal, and Roku. The campus is proximate to CA-880, CA-680, and CA-101 and the Santa Clara Caltrain station, which provides access to the surrounding area. The property is also close to a future BART station and the San Jose International Airport.

The property is fully leased to Yahoo, pursuant to a new triple net lease through April 2037, and will serve as the new Silicon Valley technology hub for the tenant. The Yahoo lease is fully guaranteed by Verizon Communications, Inc. (Verizon). Founded in 2000, Verizon is the second-largest cellular communications carrier globally by market capitalization and revenue. Verizon has more than 130,000 employees across 175 countries and offers wireless, retail, broadband, and FiOS video connections. Verizon had a market cap of approximately $210 billion as of December 2, 2021, and annual revenue of $128 billion as of YE2020. Verizon has been in the top 20 companies on the Fortune 500 List for more than 20 years. The company is rated investment grade.

In addition to 100% investment-grade tenancy, there is no lease rollover during the initial loan term. The weighted-average remaining lease term at the property is approximately 15.5 years, which results in a stable, long-term cash flow stream with 3% annual contractual rent increases. The tenant lease expires on April 30, 2037, and has two seven-year extension options with no early termination rights (other than material casualty or condemnation). The single-tenant nature of the property creates a binary risk where the entire stream of cash flow depends on the performance of one tenant. However, the lease guarantor’s investment-grade credit rating and the mission-critical nature of the property help to mitigate this risk.

The sponsor for the transaction is AGC Equity Partners Investments, Ltd., which is an affiliate of AGC Equity Partners (ACG), a London-based investment firm focused on sourcing and executing exceptional yield-producing asset investments and achieving above market-risk-adjusted returns. The sponsor has approximately $7 billion in assets under management across real estate, infrastructure, and yield-producing opportunities.

Loan proceeds of $513.5 million and sponsor equity of approximately $291 million are being used to finance the acquisition of the subject property and closing costs associated with the transaction. The $513.5 million loan comprises 11 promissory notes: nine senior A notes totaling $245 million and two junior B notes totaling $268.5 million. The transaction is structured with a five-year anticipated repayment date (ARD) ending on December 6, 2026, and the loan is IO through the ARD. The loan has a stated maturity date of April 6, 2032.

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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