DBRS Morningstar Confirms All Classes of MKT 2020-525M Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-525M issued by MKT 2020-525M Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance. The 10-year fixed-rate loan is interest only (IO) for the full term and is secured by the fee, leasehold, and subleasehold interests in 525 Market Street, a 38-story, 1.1 million square foot (sf) Class A office tower in San Francisco’s central business district. Originally built in 1973, the LEED Platinum certified property is primarily configured for office use, with 14,655 sf of retail on the first floor. The trust debt comprises $270 million in senior A notes and $212 million in junior B notes; the whole loan totals $682.0 million inclusive of all senior debt and subordinate debt. The loan is sponsored by a joint venture between New York State Teacher’s Retirement System (NYSTRS) advised by J.P. Morgan Asset Management (JPMAM), and RREEF.

The two largest tenants are Amazon (39.3% of net rentable area (NRA), lease expiration in April 2029) and Wells Fargo Bank (13.7% of NRA, lease expiration in June 2025). A majority of the tenants or parent companies are investment grade. The property was 91.4% occupied as of December 2021, compared with the YE2020 and issuance occupancy of 96.9%. The third-largest tenant, Sephora, gave back approximately 53,000 sf of space in 2021, reducing its footprint to 11.0% of NRA from 16.2% of NRA at issuance. Its current lease, which includes rent abatements, extends through October 2023, at which point the tenant is expected to vacate and relocate its headquarters to the nearby Salesforce East building. According to Reis, office properties located in the North Financial District submarket of San Francisco reported an average vacancy rate of 9.7% for Q4 2021, which is up from 7.4% at YE2020 and 4.9% at YE2019 .

The loan reported a YE2021 debt service coverage ratio (DSCR) of 2.09 times (x), compared with the YE2020 DSCR of 1.96x and DBRS Morningstar DSCR of 2.52x at issuance. DBRS Morningstar recognizes that revenues will lag issuance expectations in the near term, considering Sephora’s rent abatements and its eventual departure in 2023 as well as the future rent-step credit given to certain tenants at issuance that is not yet reflected in the current reporting. However, mitigating factors that point to continued performance include the property’s excellent location, high-quality healthy submarket fundamentals, and strong sponsorship. Amazon completed an expansion in 2021 and is now paying full rent following the burn-off of its abatement period last year. The DBRS Morningstar net cash flow of $51.6 million represents a significant haircut to the Issuer’s figure of $60.3 million, providing additional cushion against increasing volatility through the near to moderate term.

ESG CONSIDERATIONS
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-A is an IO certificate that references 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.

The DBRS Morningstar 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 4, 2022), 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’s 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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577