DBRS Morningstar Confirms Ratings on MFTII 2019-B3B4 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates Series 2019-B3B4 issued by MFTII 2019-B3B4 Mortgage Trust as follows:

-- Class A at AA (low) (sf)
-- Class B at A (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance.

The loan is secured by the borrower’s fee-simple interest in the Moffett Towers II – Buildings 3 and 4, two Class A office buildings totaling 701,266 square feet (sf) in Sunnyvale, California. The tenant also has access to and pays rent on 23,860 sf of allocated amenity space that is not part of the collateral. The subject buildings were constructed in 2019, built to suit Meta (previously Facebook), and are LEED Platinum certified Class A facilities with strong curb appeal. The whole loan of $590.0 million consists of $350.0 million of senior debt, $155.0 million of junior debt, and $85.0 million of mezzanine debt. The subject transaction represents $5.0 million of the senior debt and the entire junior debt portion. The loan is sponsored by Jay Paul Company, a leading real estate development and investment management firm.

Since issuance, the collateral has remained fully occupied by Meta, an investment-grade tenant, on two 15-year leases expiring in May 2034. According to the June 2022 rent roll, the property achieves an average rental rate of $58.98 per square foot (psf). Per Reis, office properties located in the Santa Clara/Sunnyvale submarket reported a Q4 2022 vacancy rate of 20.1% and effective rental rate of $38.60 psf, compared with the Q4 2021 vacancy rate of 19.7% and effective rental rate of $39.22 psf.

For the trailing nine months ended September 30, 2022, the loan reported an annualized net cash flow (NCF) of $40.8 million, compared with the YE2021 NCF of $41.3 million, YE2020 NCF of $36.4 million, and the DBRS Morningstar NCF of $43.3 million. DBRS Morningstar’s NCF analysis gives credit to the effective gross income by straight-lining Meta’s rent over the term of the loan, given its consideration as a long-term credit tenant. The leases include two 84-month extension options, each at 95.0% of the fair-market value, and no termination options are available.

DBRS Morningstar maintains a stable performance outlook for the loan based on the credit quality of the tenant, Meta’s long-term leases, and its commitment to the Silicon Valley area based on its self-funded build-outs at the properties.

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).

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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