DBRS Morningstar Confirms Ratings on All Classes of Hudson Yards 2019-30HY Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates issued by Hudson Yards 2019-30HY Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (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 loan is secured by the borrower’s condominium interest in 1.5 million square feet (sf) of Class A office space in Manhattan. The borrower’s condominium interest spans from floors 16 through 51 of the 30 Hudson Yards building, a recently built 90-story, 2.6 million-sf office building in New York’s revitalized Hudson Yards district. Whole-loan proceeds of $1.43 billion along with $782.0 million of sponsor equity facilitated the acquisition of the subject at a purchase price of $2.16 billion and cover closing costs. The senior debt consists of $1.12 million while the junior debt consists of $310.0 million. The trust includes $698.0 million of senior debt and all of the junior debt.

The collateral is designed to LEED gold certification standards and has been 100.0% leased to and occupied by WarnerMedia since issuance on a triple-net lease expiring in 2034, which is five years beyond the July 2029 loan maturity. AT&T, an investment-grade rated entity, has guaranteed the lease since issuance. According to news outlets, WarnerMedia and Discovery, Inc. (Discovery) finalized a merger on April 8, 2022, resulting in the formation of Warner Bros. Discovery, Inc. (WBD). DBRS Morningstar subsequently inquired about the possibility of a replacement lease guarantor. The servicer has indicated that the existing parties of the lease will remain; however, there is an option to replace the guarantor subject to certain conditions including a net worth requirement and the requirement that the credit rating of the replacement guarantor not be lower than the rating of the original guarantor.

The lease is structured with 2.5% annual rent steps as well as four, five-year extension options, each at 100% of fair market rent. In the fifth year of the lease, WarnerMedia has a contraction option for up to ten floors or 404,325 sf at a cost of $24.0 million per floor (approximately $594 per square foot (psf)) up to a maximum of $240.0 million to the lender. Furthermore, if it contracts its space by more than three floors, the tenant will be required to pay an additional $125 psf of the contracted space in excess of the highest three floors, which will be held by the lender in escrow and released to the borrower when the contraction space is re-leased.

According to the December 2021 rent roll, WarnerMedia reported a rental rate of $78.80 psf, compared to the issuance rental rate of $75.00 psf. According to Reis, office properties located in the Penn Station submarket reported a YE2021 vacancy rate of 8.0% and effective rental rate of $48.65 psf, compared to the YE2020 vacancy rate of 6.9% and effective rental rate of $50.18 psf. As of YE2021, the reported net cash flow (NCF) was $110.6 million, compared to the YE2020 NCF of $110.5 million and the DBRS Morningstar NCF of $112.5 million. The DBRS Morningstar NCF analysis includes a straight-lining of WarnerMedia’s rent over the loan term given its consideration as a long-term credit tenant, which is not reflected in the current servicer reporting.

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 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.

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 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.

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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