DBRS Morningstar Confirms All Ratings of NYT 2019-NYT Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates issued by NYT 2019-NYT Mortgage Trust:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. The transaction is secured by the borrower’s leasehold interest on a portion of the Class A, New York Times Building, office building in midtown Manhattan, including floors 28 through 50, representing approximately 715,000 square feet (sf) of office space, and 23,000 sf of ground floor retail space. The New York Times headquarters are located on floors 2 through 27 and are not collateral for the loan. Additionally, the collateral is subject to a ground lease through December 2100, with an option to purchase in 2032. The loan is sponsored by Forest City Enterprises L.P., and is owned by Brookfield Property Partners L.P., which contributed $279.6 million of sponsor equity at loan closing to acquire the property.

The $615 million whole loan consists of a $515 million mortgage trust loan and $120 million of secured subordinated debt held outside of the transaction. Additionally, there is $115 million of unsecured mezzanine debt that is held outside of the transaction. In November 2022, the borrower exercised its third of five 12-month extension options for the underlying mortgage loan to December 2023, which has a floating rate, interest-only (IO) structure. There is an interest rate cap agreement in place that caps the spread over Libor at 3.5%.

According to the June 2022 rent roll, the property was 89.9% occupied, down from 99.2% at YE2021. The occupancy decline was mainly driven by the departure of Osler, Hoskin & Harcourt LLP, which represented 8.6% of the net rentable area (NRA) with two leases that expired in May and June 2022; however, the space was expected to be backfilled by Datadog, Inc. (Datadog) in September 2022. Datadog is expected to backfill a significant amount of space at the subject, including the entirety of ClearBridge Investments’ (ClearBridge) space, which currently represents 27.2% of NRA as the tenant will not renew its lease scheduled to expire in December 2023. ClearBridge had previously subleased a portion of its space to Datadog, which has since signed a direct lease at the property. In addition, Datadog is expected to occupy Goodwin Procter LLP’s (Goodwin) space (8.9% of NRA) once Goodwin’s lease expires in March 2023. Datadog will occupy several floors at a time with lease commencement dates ranging between September 2022 to January 2025, occupying approximately 45.0% of NRA by 2025, with starting rents at about $95 per square foot (psf) and will step up to approximately $100 psf by the second rental period. This is generally in line with the rental rates paid by the previous tenants that range between $90 to $100 psf.

According to Reis, Class A office buildings within a 1 mile radius of the subject reported Q4 2022 vacancy and effective rental rates of 10.0% and $88.55 psf, respectively, compared with the Q4 2021 vacancy and effective rental rates of 8.8% and $87.02 psf, respectively. Other large tenants at the property include Covington & Burling LLP (26.2% of NRA, lease expires in September 2027) and Seyfarth Shaw LLP (17.5% of NRA, lease expires in December 2032).

Based on trailing nine months ended September 30, 2022, financials, the loan reported an annualized net cash flow (NCF) of $49.7 million, compared with the YE2021 NCF of $46.7 million, YE2020 NCF of $52.4 million, and the DBRS Morningstar NCF of $43.5 million.

While there has been a decline in occupancy at the property in addition to a significant concentration of rollover risk in the near term, this is mitigated by the meaningful leasing traction as the borrower was able to sign direct leases with Datadog. In addition, the subject reported an average rental rate of $91.06 psf, which is above the submarket average, showcasing the subject’s superior position given its desirable location.

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 (May 17, 2022).

Class X-EXT 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.

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

The principal methodology is the 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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