DBRS Morningstar Confirms Ratings on All Classes of COMM 2016-787S Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-787S issued by COMM 2016-787S Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class X-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 and Stable trends reflect the overall stable performance of the underlying property since the last rating action.

The transaction is secured by 787 Seventh Avenue, a 1.7 million square-foot (sf), Class A office building in Midtown Manhattan located on Seventh Avenue between 51st and 52nd Streets. The property is close to Rockefeller Center and multiple subway lines that offer convenient access to Times Square and Grand Central Terminal. The property benefits from its desirable location within the Midtown West submarket and investment-grade tenancy. The loan is sponsored by Fifth Street Properties, LLC, a joint venture between the California Public Employees’ Retirement System and CommonWealth Partners LLC.

According to the September 2022 rent roll, the property was 94.2% occupied, slightly down from 99.8% at YE2021. The occupancy decline is largely a result of the largest tenant, BNP Paribas S.A. (BNP), downsizing in 2022. BNP previously occupied 517,200 sf (29.4% of Net Rentable Area (NRA)), but gave back approximately 127,100 sf (9.3% of NRA) across multiple expiring leases. BNP’s current footprint is 353,300 sf (20.1% of NRA), leased through December 2041 with a reduced average rate of $46.97 psf, down from $76.07 psf. The second- and third-largest tenants, Sidley Austin LLP (20.1% of NRA) and Willkie Farr & Gallagher LLP (19.0% of NRA), have lease expirations in May 2037 and August 2027, respectively. There is minimal rollover over the next 12 months, with less than 4.0% of NRA scheduled to roll. According to Reis, the Q4 2022 Class A office properties within the Midtown West submarket reported vacancy and effective rental rates of 12.6% and $85.02 psf, respectively. The property reported an effective rental rate lower than the submarket at $70.33 psf, suggesting the potential for an upside in revenue if new leases are secured.

The annualized net cash flow (NCF) for the trailing 12-month period ended June 30, 2022, was $62.7 million, compared with the DBRS Morningstar NCF of $70.1 million derived in 2020, and the YE2021 figure of $62.6 million. The decrease in NCF is a result of rent abatements related to BNP’s renewal. DBRS Morningstar expects cash flow to level off and performance to remain stable as rent abatements burn off. The debt service coverage ratio for the same period was 2.35 times (x), up from 2.07x at YE2021.

The $780.0 million whole loan consists of eight senior pari passu A notes totaling $566.0 million and one $214.0 million junior B note. The $640.0 million subject transaction is secured by six senior A notes totaling $426.0 million and the junior B note. The two remaining senior A notes were contributed to the DBJPM 2016-C1 Mortgage Trust (rated by DBRS Morningstar) and JPMDB Commercial Mortgage Securities Trust 2016-C2 (not rated by DBRS Morningstar) transactions. The fixed-rate, interest-only (IO) loan has a 10-year term and is scheduled to mature in February 2026.

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).

Classes 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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