DBRS Morningstar Confirms All Ratings on MOFT 2020-B6 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates issued by MOFT 2020-B6 Mortgage Trust:

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

All trends are Stable.

The rating confirmations reflect the current performance of the collateral, which remains stable and in line with DBRS Morningstar’s expectations at issuance. The underlying loan is secured by a 314,400-square-foot (sf) Class A office building in Sunnyvale, California. The collateral is one of six identical buildings that make up the Moffett Place campus within the greater Moffett Park development. The subject was constructed in 2020 and is 100.0% leased through January 2029 to Google LLC (Google), whose parent company, Alphabet Inc., is rated investment grade. The whole loan of $200.0 million is composed of eight pari passu senior notes with an aggregate principal balance of $133.1 million and two junior notes with an aggregate principal balance of $66.9 million. The total trust balance of $67.4 million consists of the two junior notes and $500,000 of senior debt. In addition, there is mezzanine debt of $49.0 million. The 10-year, fixed-rate loan is interest only throughout the loan term.

Google’s initial lease is scheduled to expire before the August 2030 loan maturity; however, there are two seven-year renewal options available to the tenant. Although the appraiser’s estimated market rent was $60.00 per sf (psf) on a triple net (NNN) basis at issuance, which is higher than Google’s base rental rate for year one of $49.56 psf NNN, the lease is structured with annual rent steps of approximately 2.0%, and a renewal would be at a market rental rate. In addition, the loan is structured with a cash flow sweep if notice to renew is not received 20 months prior to lease expiration. The sweep is expected to generate $12.3 million (approximately $40.00 psf) for future re-leasing costs.

As of April 2022, the building was 100% occupied; however, the loan is being monitored on the servicer’s watchlist because of the debt service coverage ratio (DSCR) dropping below 1.10 times (x). The servicer reported YE2021 net cash flow of $10.5 million and a DSCR of 1.05x is considerably lower than DBRS Morningstar’s analyzed figures at closing of $14.6 million and 1.59x, respectively. The variance is driven by a 30.2% decline in base rental income. The variance in cash flow is not unexpected given that the build-out work for Google began in May 2020 and, according to the terms of the lease, Google started paying base rent in May 2021. As such, the servicer-reported YE2021 financials are likely reflective of partial-year reporting. Google’s build-out was originally scheduled for completion by October 2021, but was slightly delayed to November 2021. The delay coincided with Google’s plan to extend its work-from-home policy through Q3 2021 amid the Coronavirus Disease (COVID-19) pandemic; however, Google has subsequently announced that its employees will be expected to return to the office a minimum of three days a week.

The subject transaction benefits from the long-term lease to Google and the collateral building’s strong location, which should support its continued desirability for Google, or other firms with a need for a presence in a prominent area of Silicon Valley. In addition, the sponsor for this transaction is an affiliate of Jay Paul Company, a privately held real estate development firm founded in 1975 and based in San Francisco with significant experience and a focus on the acquisition and development of high-end, build-to-suit office product, specifically for firms interested in leasing space in Silicon Valley.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 Viewpoint platform provides additional information on this transaction and underlying loan 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.

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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