DBRS Morningstar Confirms All Classes of Worldwide Plaza Trust 2017-WWP

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-WWP issued by Worldwide Plaza Trust 2017-WWP:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (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. The transaction consists of a $705.0 million participation in a $940.0 million first-lien, whole mortgage loan secured by a Class A office property in Manhattan. In addition to the first-lien mortgage, there is $260.0 million of mezzanine debt held outside the trust. The 10-year trust loan matures in November 2027 and is sponsored by a joint venture between SL Green and RXR Realty LLC. The property totals 1.8 million square feet (sf) and occupies an entire block between 49th Street and 50th Street at 825 Eighth Avenue in New York City's Midtown West submarket. The property also includes 10,592 sf of ground-level retail space, and the C and E subway lines are accessible via a station beneath the building.

The two largest tenants, Nomura Holding America, Inc. (Nomura) and Cravath, Swaine & Moore LLP (Cravath), collectively account for 68.1% of the net rentable area (NRA). Nomura, representing 38.0% of the NRA, uses the space at the property as its North American headquarters. Nomura is an investment-grade tenant and has a lease expiry in September 2033, but the lease also contains a contraction option for up to 10.0% of its total NRA for the five-year period commencing in February 2022 and a one-time termination right for all of its space in January 2027, following an 18-month notice period. The servicer has confirmed the tenant exercised its contraction option in 2020 and reduced its footprint by approximately 41,000 sf, accounting for approximately 2.0% of the property’s NRA.

Cravath, representing 30.1% of the NRA, also uses the space for its headquarters and leases the highest floors at the property. Cravath’s current lease expires in August 2024, and the tenant confirmed in October 2019 that it plans to relocate its headquarters to Two Manhattan West at lease expiration. Cravath’s contractual rental rate is significantly higher than the Midtown West submarket’s current asking rents of $68.95 per square foot (psf) at YE2021, which may result in a delayed stabilization of income even if the borrower is able to backfill all of the vacated space. Cravath is currently subleasing to notable tenants including AMA Consulting Engineers, P.C., which has reportedly signed a direct lease for 30,756 sf (1.7% of the property NRA), which will begin at Cravath’s lease expiration in August 2024. In addition, the loan is structured with a springing rollover reserve account, which will begin sweeping cash on August 31, 2023, one year prior to Cravath’s lease expiration, until the aggregate amount deposited equals $42.4 million, equal to $76.96 psf in addition to the $10.9 million current balance in the tenant reserve account as of the March 2022 reserve report.

As of YE2021, the debt service coverage ratio (DSCR) was 2.44 times (x), an increase when compared with the YE2020 DSCR of 2.09x despite a slight dip in occupancy to 94.6% from 97.3% for the same period. The collateral is in a highly desirable location within the Midtown West submarket and benefits from high quality finishes. According to Reis, office employment at the metro level is expected to grow at an average of 2.1% annually between February 2022 and YE2023, with the Midtown West submarket claiming 5.0% of this demand. Flight to quality is expected to continue to drive up Class A absorption rates and DBRS Morningstar believes that strong submarket fundamentals, loan structural features, and lead-time sufficiently mitigate the near to medium risk associated with the expected increase in vacancy.

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 interest-only (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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 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 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 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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