DBRS Morningstar Places All Classes of MAD 2015-11MD Mortgage Trust Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) placed all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-11MD issued by MAD 2015-11MD Mortgage Trust Under Review with Negative Implications as follows:

-- Class A rated AAA (sf)
-- Class B rated AA (sf)
-- Class C rated A (low) (sf)
-- Class D rated BBB (low) (sf)

There are no trends for these rating actions.

The collateral comprises the fee, leasehold, and reversionary interest in the condominium units for 11 Madison Avenue, a Class A, 29-story, 2.3 million-square-foot office tower in Manhattan’s Midtown South submarket.

The largest tenant is Credit Suisse, with 50.0% of the net rentable area (NRA) on a lease expiring in May 2037. The bank recently disclosed a massive loss with its 2022 year-end reporting, in addition to announcing findings regarding issues with financial reporting as well as numerous compliance failures. On March 19, 2023, UBS announced its intentions to acquire Credit Suisse, a move that contributed to DBRS Morningstar’s downgrade of Credit Suisse AG to Selective Default (see the press release “DBRS Morningstar Takes Rating Actions on Credit Suisse Following Sale to UBS” dated March 22, 2023, at https://www.dbrsmorningstar.com/research/411462). Credit Suisse is one of many institutions caught up in the most recent banking crisis, which has weakened confidence in the industry’s ability to function. Given the significant exposure to Credit Suisse, DBRS Morningstar has placed all of this transaction’s ratings Under Review with Negative Implications.

The building is located between 24th Street and 25th Street, occupying an entire city block that overlooks Madison Square Park. The building was 96.5% occupied according to a September 2022 rent roll. Credit Suisse recently gave back a floor of space representing approximately 3.5% of the NRA in exchange for a termination fee of $6.1 million, which was deposited into a reserve account. Other major tenants at the property include Sony (24.5% of the NRA, lease expiry in January 2031) and Yelp (8.1% of the NRA, lease expiry in April 2025).

Servicer-reported net cash flow for YE2022 was $130.2 million, reflective of a 2.84 times debt service coverage ratio. Performance has been stable to improving year over year since issuance. Credit Suisse has based its North American headquarters at the property since 1996. Credit Suisse has two remaining termination options, available in 2027 and 2032; each may be exercised for up to a full floor of space. In the coming weeks, DBRS Morningstar will assess the potential impact of the most recent banking crisis on the credit quality of the underlying property.

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).

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 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.

This rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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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