DBRS Morningstar Confirms Ratings on All Classes of Citigroup Commercial Mortgage Trust 2020-420K

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-420K issued by Citigroup Commercial Mortgage Trust 2020-420K as follows:

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

All trends are Stable.

The rating confirmations reflect the transaction’s overall stable performance, which remains in line with DBRS Morningstar’s expectations. The underlying loan for this transaction is collateralized by the borrower’s fee-simple interest in two 22-story luxury residential towers, 416 Kent and 420 Kent, located along the waterfront in the Williamsburg neighbourhood of Brooklyn, New York. The $388.0 million total debt package consists of a mortgage loan of $298.0 million and a mezzanine loan of $90.0 million. The mortgage loan comprises $216.9 million in senior notes and $81.1 million in junior notes. The trust is made up of the $156.9 million senior A-1 note and the $81.1 million junior B-1 note for an aggregate principal amount of $238.0 million in the trust. The $60.0 million A-2 note is pari passu with the senior note, but is held outside the trust (contributed to the BMARK 2020-B21 transaction, which is not rated by DBRS Morningstar). The mezzanine loan is not an asset of the trust. The notes evidence a 10-year fixed rate interest-only (IO) loan, maturing in November 2030, with no extension options. The total proceeds of $388.0 million were used to refinance $381.5 million of existing debt, pay closing costs, fund upfront reserves, and return equity to the sponsor.

The collateral has 857 units, with 468 units, or 54.6%, being studio apartments. The remaining units include 202 one-bedroom units and 187 two-bedroom units. In addition, both towers are built on one base, which has 18,827 square feet (sf) of commercial space. The collateral offers extensive amenities including two parking garages containing a total of 429 parking spaces, rooftop pools, resident lounges, a fitness center, yoga studios and co-working lounges, and much more.

The residential portion of the development benefits from significant 421-a tax exemptions during the loan term and, in return, the developer has designated between 20% and 25% of the units at each address as affordable housing (65 units at 416 Kent and 121 units at 420 Kent). The market rate units at 416 Kent generally are not subject to any restrictions on rental rates, while the market rate component at 420 Kent is subject to limitations on rental rate increases set by the NYC Rent Guidelines Board during the exemption period. The tax abatements exempt each of the properties from 100% of the taxes on the improvements and will continue well past loan maturity.

The properties were completed and began leasing up in 2019 but were not fully stabilized at the time the Coronavirus Disease (COVID-19) pandemic broke out. At issuance, the properties were 83.7% occupied but this has improved significantly, considering the June 2022 rent roll reported an occupancy rate of 98.9% with an average rental rate of $3,593 per unit. As of Q2 2022 Reis data, the average asking rental rate in the Kings County submarket was reported at $2,611 per unit with an average vacancy rate of 3.2%, suggesting the subject collateral is outperforming its competitive set. According to the June 2022 financials, the properties reported an annualized net cash flow (NCF) of $24.9 million, compared with the YE2021 NCF of $16.8 million and the DBRS Morningstar NCF of $21.8 million.

The sponsor and guarantor for the mortgage loan is Eliot Spitzer, the former governor of New York and the head of Spitzer Enterprises, a real estate firm started by his father, Bernard Spitzer. Spitzer Enterprises has a 60+ year history of developing, owning, and managing real estate in New York City and Washington, D.C.

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.

Class X 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.

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 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 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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