DBRS Morningstar Confirms Ratings on MAD 2015-11MD Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-11MD issued by MAD 2015-11MD Mortgage Trust:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since the last review. The transaction represents a portion of a 10-year, $1.08 billion interest-only (IO) loan obtained by the borrower to obtain the fee, leasehold, and reversionary interest in the condominium units for 11 Madison Avenue. The collateral is a Class A, 29-story, 2.3 million-square-foot (sf) office tower in Manhattan’s Midtown South submarket. It sits between 24th Street and 25th Street, occupying an entire city block that overlooks Madison Square Park. The trust debt totals $708.2 million, which is split between senior debt totaling $397.5 million and junior subordinate debt totaling $310.7 million. The whole-loan balance includes a $366.8 million senior companion loan that is pari passu with senior trust debt notes. There is also a $325 million mezzanine loan that is co-terminous with the mortgage trust. SL Green Realty Corp., one of Manhattan’s largest office landlords, is the loan’s sponsor and guarantor.

As of the September 2022 rent roll, the subject was 96.5% occupied, illustrating a slight decline from YE2021 of 100%. The largest three tenants at the subject accounted for 82.6% of the total leasable space in the property with minimal near-term lease rollover risk. This includes Credit Suisse (50.0% of the net rentable area (NRA), lease expires in May 2037), Sony (24.5% of the NRA, lease expires in January 2031), and Yelp (8.1% of the NRA, lease expires in April 2025).

Credit Suisse previously occupied 53.5% of NRA, but it exercised one of its termination options in 2022 and gave back the 13th floor (3.5% of NRA). The tenant paid a $6.1 million termination fee, which was deposited into a reserve account. Credit Suisse has two termination options remaining, exercisable in 2027 and 2032, which will allow the tenant to vacate a single floor each time. In November 2022, DBRS Morningstar downgraded its Long-Term Issuer Ratings on Credit Suisse AG to A (low) from “A” and Credit Suisse Group AG (the top-level holding company) to BBB (high) from A (low). DBRS Morningstar maintained Negative trends on both ratings. For more information on these ratings, please see the following press release: https://www.dbrsmorningstar.com/research/404830.

In June 2022, Yelp announced that it will be downsizing its office space in several cities, including its footprint at the subject property, as the company shifts to permanent remote work. According to the sponsor, Yelp had sublet 39,565 sf of its space to ActionIQ, and the sublease is co-terminous with Yelp’s direct lease. According to a LoopNet posting as of February 2023, the only available space for lease is the former Credit Suisse space on the 13th floor. DBRS Morningstar has asked the servicer to confirm if the remaining Yelp space has been subleased. As per Reis, office properties in the Midtown South submarket reported a Q4 2022 vacancy rate and asking rental rate of 11.1% and $66.51 per square foot (psf), respectively, compared with the Q4 2021 figures of 10.3% and $66.85 psf, respectively. It is worthy to note that Credit Suisse is paying an average rental rate of $40.95 psf, which is below the submarket asking rent.

According to the most recent financials, the loan reported a trailing nine months ended September 30, 2022, debt service coverage ratio of 2.79 times (x), compared with the YE2021, YE2020, and YE2019 figures of 2.82x, 2.48x, and 2.49x, respectively.

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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