DBRS Morningstar Confirms Rating on Mortgage Loan Made to Albert & Lyon Equities Inc., Albert & Lyon Properties LP, and Canderel CSQ Ottawa LP – Constitution Square

DBRS Limited (DBRS Morningstar) confirmed the rating on the following mortgage loan made to Albert & Lyon Equities Inc., Albert & Lyon Properties LP, and Canderel CSQ Ottawa LP – Constitution Square by a major Canadian financial institution:

-- Mortgage Loan at A (low)

In addition, DBRS Morningstar changed the trend to Negative from Stable with this review.

The rating confirmation and change in trend reflect DBRS Morningstar’s concerns surrounding the increased vacancy for the underlying property. The mortgage loan is secured by Constitution Square, a Class A office and retail complex located in Ottawa’s central business district (CBD). The vacancy rate was 40.5% as of February 2023, a marked increase from the vacancy rate of 25.3% as of March 2022, and well above the February 2021 vacancy rate of 9.8%. The continued decline into 2023 is attributable to the former second-largest tenant vacating the property at lease-end in 2022.

Per CBRE Limited market reports, the submarket vacancy rate for Class A office properties in the Ottawa CBD was 8.5% as of Q4 2022, compared with 6.1% at Q4 2021. Absorption followed a similar trend, falling to -82,292 square feet (sf) from 57,968 sf for the same period. Although market dynamics continue to soften, there could be some stabilization in the near to moderate term as the Federal Government of Canada has announced a blanket mandate for all public servants to return to the office at least two days a week by the end of March 2023. Although the market dynamics suggest leasing efforts could be challenged, DBRS Morningstar notes the subject benefits from its Class A status, recent capital improvements, ideal location proximate to Parliament Hill, and various transit options.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 Canadian 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.

This rating was initiated at the request of the lender.

The rated entity or its related entities did not 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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