DBRS Morningstar Confirms Ratings on All Classes of COMM 2015-3BP Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-3BP issued COMM 2015-3BP Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since the last review. The transaction benefits from the loan collateral in a high-quality, Class-A office asset in a prime location within a desirable submarket, with strong, longer-term tenancy in place.

The 10-year interest-only (IO) loan provided whole-loan proceeds of $1.1 billion to facilitate the $2.2 billion acquisition of the property known as 3 Bryant Park, a 1.2 million-square-foot (sf), Class-A office building in Midtown Manhattan. A $215.0 million mezzanine loan with a coterminous maturity date and $878.7 million of sponsor equity also supported the acquisition. The loan is sponsored by SITQ US Investments Inc., which is the United States subsidiary of Ivanhoé Cambridge Inc., a Canadian real estate company with assets around the world. The building is a high-quality asset that received more than $400 million in capital improvements between 2007 and 2014.

According to the September 2022 rent roll, the property was 93.8% occupied, with minimal near-term rollover risk and an average rental rate of $110.15 per square foot (psf). According to Reis, comparable properties within a one-mile radius of the subject reported a vacancy rate of 11.6%, an average effective rental rate of $74.03 psf, and an asking rental rate of $92.69 psf, respectively. The property’s largest tenant, MetLife Inc. (MetLife), leases 35.4% of the net rentable area (NRA) through April 2029 with no termination options; however, in late 2015, MetLife vacated and subleased the space to various tenants, including the building's new namesake, Salesforce.com, Inc., which houses its regional headquarters at the subject property, subleasing 17.7% of the total building’s NRA from MetLife through April 2029. Dechert LLP (Dechert), the second-largest tenant, extended its lease through March 2035, ahead of its initially scheduled lease expiration in July 2023. Upon the commencement of Dechert’s new lease, beginning August 2023, the tenant’s rental rate will decline marginally from $101 psf to $97.50 psf through April 2030, when the rate will increase to $107.50 psf. The retail space is anchored by a 42,818-sf Whole Foods, which has a lease expiry in 2037 and provides an attractive amenity to the property.

As of the financials ended September 31, 2022, the loan reported an annualized net cash flow (NCF) of $85.3 million, reflecting an 8.1% increase over the YE2021 NCF figure of $78.9 million and above the DBRS Morningstar re-analyzed NCF of $83.7 million derived in 2020. Based on the Q3 2022 reporting, the loan reported a debt service coverage ratio (DSCR) of 2.30 times (x), above the YE2021 figure of 2.13x. While NCF has increased year over year as a result of increased revenue across all line items, it remains well below the Issuer’s expectations of $93.9 million (reflecting a DSCR of 2.54x), as a result of increased expenses (with real estate taxes showing the most noteworthy increase by category) and revenues below the Issuer’s expectations. Real estate taxes have increased by 102.3% over the Issuer’s underwritten figure, primarily related to a real estate tax abatement that has burned off since issuance, which was considered when DBRS Morningstar re-analyzed the NCF when assigning ratings in 2020.

The in-place DSCR remains generally healthy. The overall desirability of the location and building, even amid the challenges of the Coronavirus Disease (COVID-19) pandemic and changing worker preferences that have come with that event, as well as the strong sponsorship and significant equity contribution at issuance, all should continue to support the stable performance of the loan through the remaining term.

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).

Class X-A 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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