DBRS Morningstar Changes All Trends to Stable From Negative, Confirms Ratings on All Classes of 20 Times Square Trust 2018-20TS

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-20TS issued by 20 Times Square Trust 2018-20TS as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at B (high) (sf)
-- Class H at B (low) (sf)
-- Class V at B (low) (sf)

DBRS Morningstar changed all trends to Stable from Negative with this review. The trend changes and the rating confirmations reflect the continued stable performance of the leased-fee mortgage, which has reported no delinquencies to date, and DBRS Morningstar’s improved outlook for stable performance going forward given the continued uptick in tourist travel to New York.

The portion of the $750 million leased-fee mortgage that backs the subject transaction is secured by 16,066 square feet (sf) of land under 20 Times Square, a mixed-use property comprising a 452-key Marriott Edition luxury hotel, 74,820 sf of retail space (5,500 sf of which is non-revenue-generating storage space), and 18,000 sf of digital billboards. The subject transaction holds $600 million of the leased-fee mortgage, and the remainder is split across four multiborrower conduit commercial mortgage-backed securities transactions. The ground lease and the subject leased-fee financing are senior to the leasehold interest and leasehold financing, which had a balance of approximately $1.1 billion at issuance for the subject transaction and is currently in default. In addition to the leased-fee mortgage, there is additional leased-fee financing in the form of a $150 million mezzanine note, bringing the whole loan on the leased fee to $900 million. The ground lease has a term of 99 years with an initial $29.3 million ground rent payment, increasing 2.0% annually during the first five years and then 2.75% per year thereafter. As of YE2021, the ground rent payment was reported at $33.5 million, and the servicer has not reported any defaults on the ground lease or the leased-fee mortgage to date.

The noncollateral debt on the leasehold interest went into default in December 2019, with the lender citing numerous undischarged mechanics liens against the property as well as a missed deadline to lease-up the retail space by September 2019. Various news outlets, including the New York Post, reported the property was foreclosed in January 2022. According to a Real Deal article from April 2022, the lender for that debt plans to inject capital into the project to stabilize operations at the hotel and lease-up the vacant retail space.

Updated performance metrics for the hotel were not provided, but DBRS Morningstar notes rooms are available for booking at nightly rates in excess of $500. The largest retail tenant at issuance, NFL Experience (formerly 43,130 sf), closed after only a few months of operations in 2019. Based on the July 2021 rent roll on file with the servicer for the subject transaction, the only retail tenant in place at the time was the 8,440-sf Hershey’s Chocolate World flagship store, with the document showing 66,380 sf as vacant. Some leasing activity may have occurred since, however, as CB Richard Ellis lists only 23,400 sf available as of August 2022. Although there remain challenges for New York retail and hotel properties amid the issues in oversupply and shifts in shopping habits that were beginning to show even before the onset of the Coronavirus Disease (COVID-19) pandemic, there is optimism for the well-located properties like the subject as tourist traffic has significantly increased in 2022 over the prior year. According to a CBS News story dated June 7, 2022, New York mayor Eric Adams indicated that hotel bookings for the year were at 95% of pre-pandemic levels. Anecdotally, DBRS Morningstar staff have noticed a significant uptick in traffic in and around Times Square and other tourist-heavy areas of the city during the summer of 2022.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 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.

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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