DBRS Morningstar Confirms Ratings on All Classes of Natixis Commercial Mortgage Securities Trust 2018-ALXA

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-ALXA issued by Natixis Commercial Mortgage Securities Trust 2018-ALXA:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying collateral, which remains in line with DBRS Morningstar’s expectations. The loan is secured by Centre 425 Bellevue, a 356,909-square-foot (sf) Class A, LEED Silver-certified office building in downtown Bellevue, Washington, approximately 10 miles east of Seattle. The condominium interest includes 98.3% of the leasable square footage within the 16-story structure in addition to an eight-level underground parking garage. The property is predominantly occupied by the investment-grade tenant Amazon.com, Inc. (Amazon) under a 16-year triple net lease that extends to September 2033.

The 10-year fixed-rate interest-only mortgage loan has an anticipated repayment date in 2027 and final loan maturity in 2033. The $124.5 million trust balance includes a $10 million piece of a split pari passu senior loan and a $114.5 million subordinate B note. A pari passu piece of the senior loan is held in the CSAIL 2017-CX10 transaction, also rated by DBRS Morningstar. Additional debt consists of a $57.6 million mezzanine loan, which is co-terminous with the trust mortgage loan. The loan is sponsored by RFR Holdings LLC and Tristar Capital LLC, whose principals serve as guarantors for the transaction.

According to the January 2023 rent roll, the property was 100.0% occupied. Amazon accounted for 99.4% of the net rentable area, paying a base rent of $38.73 per sf, subject to annual rent escalations of 2.25%. Per the lease agreement, Amazon’s initial lease expiry is on September 30, 2033, with three five-year extension options remaining and no termination options available. The lease is also guaranteed by Amazon, subject to a cap of $190.0 million for the first five years, which reduces by $19.0 million each year thereafter. As of January 19, 2023, The Star reported that Amazon planned to lay off 18,000 employees, 2,300 of whom were in the Seattle and Bellevue area. While these changes are noteworthy, DBRS Morningstar does not believe the layoffs pose significantly increased risks for the subject transaction given Amazon’s long-term lease with no termination options and the company’s investment-grade status.

Per the year-end (YE) 2022 financials, the loan reported a net cash flow (NCF) of $16.3 million, with a debt service coverage ratio (DSCR) of 1.81 times (x), an increase from the YE2021 NCF of $16.0 million and DSCR of 1.78x. Given the long-term credit tenant status of Amazon, the DBRS Morningstar NCF considers a straight-line rent credit for the entirety of the space occupied by the tenant.

The DBRS Morningstar rating assigned to Class E is lower than the results implied by the loan-to-value sizing benchmarks. This variance is warranted given DBRS Morningstar’s concerns surrounding the general uncertainty in the office market.

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; 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

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].