DBRS Morningstar Confirms Ratings on All Classes of MAD Mortgage Trust 2017-330M

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-330M issued by MAD Mortgage Trust 2017-330M as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E 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 loan is collateralized by the fee and leasehold interests in an 849,372-square-foot (sf) Class A LEED Gold certified office property at 330 Madison Avenue in Midtown Manhattan. The property is one block west of Grand Central Station and two blocks east of Bryant Park on the corner of Madison Avenue and 42nd Street. Constructed in 1965, the 39-story building has a progressive, tiered floor design with the largest floorplates (approximately 42,000 sf) on Floors two through 12, various setbacks on Floors 13 through 21, and the smallest floorplates (approximately 9,700 sf) on Floors 22 through 39. The retail portion of the collateral represents approximately 2.5% of the total net rentable area (NRA) and is built across the ground and mezzanine floors. The most recent renovation was completed in 2014 at a cost of approximately $121.0 million. The loan is interest only over its seven-year term.

The three largest tenants, representing a combined 53.6% of the NRA, are Guggenheim Partners (28.2% of the NRA, lease expiry in March 2028), which is headquartered at the property; Jones Lang Lasalle Incorporated (16.7% of the NRA, lease expiry in May 2032); and Munich RE America Services, Inc. (Munich RE; 8.7% of the NRA, lease expiry in January 2033). Upcoming tenant rollover is limited, with leases representing approximately 5.0% of NRA scheduled to roll within the next 12 months. As of September 2022, the property was 93.23% occupied with an average base rental rate of $74.83 per sf (psf) for office space, compared with the September 2021 figures of 85.70% and $74.05, respectively. According to Reis, comparable office properties within the Grand Central submarket reported average asking rental and vacancy rates of $76.27 psf and 12.5%, respectively, as of Q4 2022. The annualized net cash flow (NCF) for the trailing nine-month period ended September 2022 was $29.5 million, representing a 14.3% decline from the YE2021 figure of $34.4 million. The September 2022 rent roll indicates the third-largest tenant, Munich RE, which signed a new lease in June 2022, had a rent abatement that ended in January 2023. DBRS Morningstar expects NCF will stabilize through 2023 as Munich RE commences full rent payments and projects continued stable performance for the property.

Given these expectations, DBRS Morningstar did not perform an updated loan-to-value ratio (LTV) sizing for this review. The DBRS Morningstar value of $591.2 million, based on a NCF figure of $39.3 million and a capitalization rate of 6.75%, is a -37.80% variance from the appraised value at issuance of $950.0 million. The DBRS Morningstar value implies an LTV of 84.6%, compared with the 52.6% LTV on the appraised value at issuance.

In early 2020, Munich Reinsurance Company closed its acquisition of the property from a joint venture between Vornado Realty, LLP (25.0%) and the Abu Dhabi Investment Authority, which owned the asset through a subsidiary, Chadison Investment Company, LLC (75.0%). The deal implied a total asset value of $900.0 million, representing a 5.3% decline from the issuance appraised value of $950.0 million. With the acquisition, Munich Reinsurance Company assumed the subject loan.

ENVIRONMENTAL, SOCIAL, AND 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).

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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