DBRS Morningstar Confirms Ratings on SG Commercial Mortgage Securities Trust 2019-787E

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-787E issued by SG Commercial Mortgage Securities Trust 2019-787E:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (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 underlying collateral, which remains in line with DBRS Morningstar’s expectations. The collateral consists of a 513,638-square-foot, 10-story Class A mixed-use building, known as 787 Eleventh Avenue, with office as well as automotive retail showroom and service center space. The building is well located in Manhattan’s Automotive Row, which is also home to 20 other automotive dealers. The retail-auto showroom and service space (representing approximately 52.1% of the net rentable area (NRA)) is 100% leased to Jaguar Land Rover and Nissan/Infiniti, two high-quality tenants with initial lease terms that run three years beyond the loan’s maturity in 2029. Combined, the two tenants contribute more than half of the collateral’s base rent.

The loan is sponsored by Adam Flatto and William Ackman, who acquired the building in 2015 for $255.5 million. Upon acquisition, an additional $275.2 million was spent through 2019 to reposition what was once an industrial property to a high-end automotive showroom and Class A office. The sponsors have since focused on attracting life science and biotech tenants to the property’s office component. In February 2021, the Icahn School of Medicine at Mount Sinai (Mount Sinai) leased approximately 36.2% of the NRA, which includes the space previously occupied by Regus (formerly 19.3% of NRA), through 2054. Several news sources point to the sponsor’s plans to build out the space recently leased by Mount Sinai to specialized clinical, lab, and research use. According to the June 2022 rent roll, the property was 100% leased, though Mount Sinai has not yet taken occupancy.

Based on the September 2022 financials, loan performance improved over the previous year but is still below the DBRS Morningstar figure. The annualized net cash flow (NCF) for the trailing nine-month period was $17.0 million, a slight increase over the YE2021 figure but a 20.9%, or $4.5 million, decline from the DBRS Morningstar NCF derived in 2020 as Mount Sinai was receiving rent abatements given its major tenant improvement build-out. According to the most recent servicer update, the tenant is likely to take occupancy and begin paying rent in 2024. During the Mount Sinai rent abatement period, the borrower is required to deposit the minimum of the quarterly debt service shortfall or $600,000 into a free rent reserve to cover debt service shortfalls. As Mount Sinai’s initial base rent exceeds the rent the previous tenant paid, DBRS Morningstar expects rental revenue and NCF to stabilize.

The transaction consists of a $187.5 million portion of a $410 million whole loan that pays interest only for the full term and matures in 2029. The whole loan is composed of $175.0 million of senior companion loans, a $117.5 million subordinate A note, and a $117.5 million junior B note. The subject securitization contains the $70.0 million A-1A note and the subordinate $117.5 million A-2 note. Noncontrolling A notes with a combined $105.0 million trust balance are included in the CSAIL 2019-C16, BBCMS 2019-C3, and CSAIL 2019-C15 securitizations. DBRS Morningstar only rates two of the companion note commercial mortgage-backed securities transactions in CSAIL 2019-C16 and CSAIL 2019-C15.

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 is an interest-only (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 North American CMBS Surveillance Methodology (March 16, 2023), 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 info@dbrsmorningstar.com.

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 info@dbrsmorningstar.com.

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