DBRS Morningstar Confirms All Ratings on Independence Plaza Trust 2018-INDP

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-INDP issued by Independence Plaza Trust 2018-INDP:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-ECP at B (high) (sf)
-- Class X-ENP at B (high) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations.

The transaction is secured by the borrower’s fee and leasehold interest in a 1.5 million-square-foot mixed-use, retail and multifamily property in the Tribeca neighborhood of Manhattan, New York. The property consists of three, 39-story apartment towers and connecting townhomes, in addition to the commercial space. The three towers are at 310 Greenwich Street, 40 Harrison Street, and 80 North Moore Street. The property offers panoramic views of the city and Hudson River. The fee interest covers the entire property, and the leasehold interest includes the South Podium, North Podium, and Tower Development parcels. The property is close to Goldman Sachs’ headquarters, Brookfield Place (formerly the World Financial Center), and the Financial District. The loan is sponsored by a joint venture between real estate investment fund Vornado Realty L.P. and property manager and redeveloper Stellar Management.

The $675 million trust loan proceeds repaid existing debt of $551.6 million, returned $112.8 million of equity to the sponsor, and covered closing costs. The loan is interest only (IO) throughout its seven-year loan term and matures in July 2025.

The property was originally built under an affordable housing initiative in 1975 for lower- and middle-income families. Since the property exited the program in June 2004, the borrower has been working to renovate the rent-regulated apartments as they become available and re-leasing them at market rates. According to the September 2022 rent roll, 674 units were listed as fair market; 281 units were Section 8; and 286 units were listed under the Landlord Rental Assistance Program (LRAP). The average monthly rental rates for the fair market, Section 8, and LRAP units were $5,229, $862, and $1,852, respectively.

According to the September 2022 rent roll, the residential portion of the property was 90.9% occupied, up from 84.1% in September 2021. The multifamily component represents approximately 80% of the net rentable area (NRA), and the commercial space represents the remaining 20%. The property’s average fair market monthly rental rate of $5,229 is in line with Reis’ reported West Village/Downtown submarket effective average rental rate of $5,511. The property’s vacancy rate of 9.1% is slightly above the submarket vacancy rate of 4.1%; the difference is most likely attributable to vacant units undergoing renovations. The commercial portion was 82.2% occupied, down from 88.3% at September 2021 following former tenant Public School 150 (previously 6.2% of NRA) vacating in July 2022 at its lease expiration. The largest commercial tenant, Patriot Parking, LLC (representing 74.4% of NRA), leases the entire 550-space parking garage and has a lease expiration in August 2024.

The annualized trailing nine-month net cash flow, for the period ended September 30, 2022, was $36.4 million, up from $35.5 million at YE2021, but remains below $41.8 million at YE2019. The decrease in cash flow is primarily a result of interruptions in revenue as the borrower continues unit renovations, combined with year-over-year increases in real estate taxes since 2019. Despite this, the debt service coverage ratio remains relatively stable at 1.25 times. DBRS Morningstar expects the loan to exhibit stable to improved performance in the near to moderate term given the property’s desirable location, strong submarket fundamentals, and ongoing capital projects, which indicate increased upside potential.

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).

Classes X-CP, X-NCP, X-ECP, and X-ENP are IO certificates that reference 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; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 [email protected].

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].