DBRS Morningstar Confirms All Classes of CSMC 2021-GATE

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, 2021-GATE (CSMC 2021-GATE) as follows:

Class A at AAA (sf)
Class B at AA (low) (sf)
Class C at A (low) (sf)
Class D at BBB (low) (sf)
Class E at BB (low) (sf)
Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect a deal that is early in its lifecycle with limited reporting and minimal changes to the underlying performance of the transaction since issuance.

The collateral consists of three Class A office buildings totalling 1.7 million square feet (sf), including Gateway Center I, Gateway Center II, and Gateway Center IV; an 86,400-sf retail concourse; and two parking garages and a surface lot in downtown Newark, New Jersey, with access to Newark Penn Station, which serves as a hub for Amtrak, NJ Transit, and the PATH trains to Manhattan and is close to the Prudential Center arena and the New Jersey Performing Arts Center. The properties are part of a larger complex known as the Gateway Center. The sponsors, Onyx, Garrison, Taconic, and Axonic, all of which are real estate investment companies, began acquiring the assets in 2019 with the aim of unifying the ownership and renovating the buildings and concourse.

Whole loan proceeds of $325.0 million consist of a $285.0 million mortgage loan, and a $40.0 million mezzanine loan that is not part of the trust. The $285.0 million mortgage loan was used to refinance the property and pay closing costs. The two-year floating-rate loan is interest only for the full term, with an initial scheduled maturity of December 2023, and three, one-year extension options available for a fully extended maturity date of December 2026.

The deal closed in December 2021, and there has been minimal updated financial reporting since then. As of October 2022, the weighted average occupancy of the portfolio was 68.7%, remaining in line with 67.9% at issuance. The largest tenants include Broadridge Securities (9.4% of net rentable area (NRA)), Prudential Insurance (9.3% of NRA), and McCarter & English, LLP (6.8% of NRA). There is minimal rollover risk within the next 12 months, with 3.5% of NRA expected to expire. According to the servicer’s June 2022 reporting, the annualized net cash flow (NCF) was $9.1 million, and the debt service coverage ratio (DSCR) was 0.74 times (x), compared with the DBRS Morningstar NCF and DSCR of $17.2 million and 1.50x on the mortgage loan, respectively. The decrease is largely a result of debt service payments increasing, as the loan is structured with a floating interest rate. DBRS Morningstar’s NCF includes straight-line rent credit given to both Broadridge Securities and the GSA Small Business Administration, given their status as long-term credit tenants. These figures are not reflected in the most recent financial reporting. DBRS Morningstar did not give credit to the property’s upside potential, which includes the borrower’s plans for building renovations, increased occupancy, and higher rents. As of November 2022, there was $34.6 million in reserves allocated to capital expenditures and tenant improvements for current and future tenants.

DBRS Morningstar’s concluded value of $229.8 million reflects a high loan-to-value (LTV) ratio of 124.0% based on the $285.0 million mortgage loan, which increases substantially to an all-in DBRS Morningstar LTV of 141.4% when factoring in the mezzanine debt. However, the portfolio is well positioned to take advantage of improving market fundamentals, with a strong sponsorship group in place that has invested heavily in the portfolio.

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 (May 17, 2022).

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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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