DBRS Morningstar Confirms All Ratings on Classes of COMM 2020-SBX Mortgage Trust

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

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations. The transaction is collateralized by the borrowers’ fee-simple interest in the Starbucks Center, a 1.4 million square-foot (sf), Class A office building and the adjacent 108,000 sf The Home Depot in the SODO submarket of Seattle (two miles south of the Seattle central business district (CBD)). The collateral also includes two seven-story parking structures.

Loan proceeds of $425.0 million were used to refinance existing debt of $140.0 million, fund upfront reserves of $88.3 million, pay closing costs of $26.5 million, and return $170.2 million of equity to the sponsor. The loan has no subordinate debt, nor can it be added to the trust. The loan is sponsored by SODO Center, Inc. (SODO Center), and the borrower is indirectly wholly owned by SODO Center, which is controlled by Peter P. Nitze and Kevin Daniels.

The office component serves as the global headquarters for the Starbucks Corporation (Starbucks), benefitting from the long-term, institutional-grade tenancy. The tenants lease does not expire until September 2038 and features three 7.5-year lease extension options. Since relocating its corporate headquarters to the subject location in 1993, Starbucks has expanded more than 60 times, growing from 60,000 sf to its current footprint of 1.3 million sf. Since 2015, Starbucks has spent approximately $128.0 million in capital expenditures for build-outs, lobby renovations, amenities, and other projects.

The collateral’s other major tenant, The Home Depot, leases the entire retail component of the property and has a lease expiration in January 2024, with two five-year extension options available. The subject serves as the retailer’s only location in downtown Seattle. There are no tenants with leases that are scheduled to expire in the next 12 months. In addition to The Home Depot, other notable lease expirations prior to the loan’s final maturity in November 2028 include Amazon Services Inc. (3.1% of the net rentable area), which is scheduled to expire in August 2026; however, the tenant does have four five-year extension options remaining.

The full-term interest-only (IO) loan has an anticipated repayment date (ARD) of November 2025 and a final maturity date of November 2028. The ARD structure of the loan, which requires that all net cash flow (NCF) after debt service be applied to the principal during a three-year tail, coupled with Starbucks’ lease term relative to the ARD and stated maturity, reducing maturity default risk.

Per the Q1 2022 financials, the consolidated annualized NCF was $18.5 million (reflecting a debt coverage service ratio (DSCR) of 1.83 times (x)), which is below the DBRS Morningstar figure of $39.0 million (reflecting a DSCR of 3.95x); however, DBRS Morningstar accounted for Starbucks’ contractual rent step of $28.17 per sf (psf), which takes effect in October 2025. The cash flow reported remains in line with the sponsor’s year-one budget of $19.0 million.

According to the March 2022 rent roll, the collateral is reporting an average rental rate of $12.32 psf compared with the Q2 2022 Central Seattle submarket asking rent of $45.25, which is an increase from the Q2 2021 figure of $44.18 psf. At issuance, DBRS Morningstar noted Starbucks’ below-market rental rate of $8.52 psf, which was a key variable of Starbucks’ early expansion plan in 1995 and allowed Starbucks to lease the warehouse space at a low rental rate with the requirement that it would fund any building system and tenant improvements.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance (ESG) 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 (May 17, 2022).

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 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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