DBRS Morningstar Confirms Ratings on All Classes of Worldwide Plaza Trust 2017-WWP

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-WWP issued by Worldwide Plaza Trust 2017-WWP as follows:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (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. The transaction is secured by a Class A office property in Manhattan. Whole-loan proceeds of $940.0 million and $260.0 million of mezzanine debt facilitated the recapitalization financing of the collateral and cover closing costs. The whole-loan consists of $616.3 million of senior debt and $323.7 million of junior debt, of which the entirety of the junior debt and $381.3 million of the senior debt is held in the trust.

The fixed-rate loan is interest-only (IO) through its 10-year term, maturing in November 2027, and is sponsored by a joint venture between SL Green Realty Corporation and RXR Realty LLC. The property totals 1.8 million square feet (sf) and occupies an entire block between 49th Street and 50th Street at 825 Eighth Avenue in New York City's Midtown West submarket. The property also includes 10,592 sf of ground-level retail space, and the C and E subway lines are accessible via a station beneath the building.

According to the December 2022 rent roll, the property was 89.5% occupied. The two largest tenants, Nomura Holding America, Inc. (Nomura; 38.0% of the net rentable area (NRA), lease expires in September 2033) and Cravath, Swaine & Moore LLP (Cravath; 30.1% of the NRA, lease expires in August 2024), uses the space as their respective headquarters. In 2019, Cravath announced its plans to relocate its footprint at the subject to Two Manhattan West at its lease expiration in 2024. Cravath began subleasing portions of its space to subtenants, including AMA Consulting Engineers, P.C. (AMA; 30,756 sf) and McCarter & English, LLP (33,233 sf), with AMA signing a direct lease at the subject after Cravath’s lease expiration for that unit.

A significant area of concern is that Cravath’s contractual rental rate is $98.02 per sf (psf), well above the submarket’s average asking rental rate of $69.36 psf, per a Q4 2022 Reis report. Excluding Cravath’s rental rate, the property’s average rental rate is $67.79 psf, trailing behind the submarket average. Although worrisome, those concerns are partially mitigated by the fact that the subject is in a highly desirable location in the Midtown West submarket and benefits from its high-quality finishes and strong sponsorship. The loan is structured with a springing rollover reserve account to begin sweeping cash in August 2023, one year prior to Cravath’s lease expiration, until $42.4 million is deposited into the account to aid with future re-leasing of Cravath’s space equal to $76.96 psf. At issuance, Nomura occupied 819,906 sf (40.0% of NRA) of space but exercised its right to reduce its space in January 2022. The tenant gave back two floors and paid a termination fee of $10.9 million, which is currently held in reserves. The tenant now occupies 38.0% of NRA but has another option to reduce its footprint further or terminate its lease in whole or in parts in January 2027, on the condition that 18 months’ notice is provided along with a termination fee equal to six months of fixed rent on the terminated space.

As of the YE2022 financials, the property reported a net cash flow (NCF) and debt service coverage ratio of $73.8 million and 2.18 times (x), respectively. This compares with the YE2021 NCF, YE2020 NCF, and DBRS Morningstar NCF of $83.8 million, $69.5 million, and $73.3 million, respectively. The YE2021 financials reported an expense reimbursement figure of $32.4 million, which is above historical figures that generally average around $25 million.

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-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 (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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