DBRS Morningstar Confirms Ratings on Natixis Commercial Securities Trust 2020-2PAC

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-2PAC, Amazon Phase VII Loan Specific Certificates issued by Natixis Commercial Mortgage Securities Trust 2020-2PAC (NCMS 2020-2PAC) as follows:

-- Class AMZ1 at BBB (low) (sf)
-- Class AMZ2 at BB (low) (sf)
-- Class AMZ3 at B (low) (sf)
-- Class V-AMZ at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the loan, which remains consistent with DBRS Morningstar’s expectations at issuance. The loan is secured by the borrower’s fee-simple interest in Amazon Phase VII, a 12-story, Class A office property in Seattle, Washington. The Amazon Phase VII whole loan of $220.0 million is composed of $160.0 million of senior debt and $60.0 million of junior debt. The fixed-rate, interest-only loan has an anticipated repayment date (ARD) in April 2025, with a final maturity in December 2026. The Amazon Phase VII A note was contributed to the subject trust and split into four components: one senior pooled component with an outstanding principal balance of $100.1 million and three subordinate nonpooled components totalling $59.9 million, which serve as collateral for these rated loan-specific certificates. DBRS Morningstar does not rate the NCMS 2020-2PAC pooled certificates. The sponsors cashed out $17.5 million as part of the transaction; however, they still have approximately $68.0 million of implied equity behind the deal based on the issuance appraised value.

The property was constructed in 2015 and was built to suit for Amazon Corporate LLC (Amazon), a subsidiary of Amazon.com, Inc, an investment-grade-rated tenant. The building is LEED Gold certified and totals 318,617 square feet (sf), including 5,651 sf of ground-floor retail space, a four-level subterranean parking garage containing 429 parking spaces, a public plaza, and a landscaped rooftop terrace with sweeping views of Seattle. The property is one of more than 40 office buildings comprising Amazon’s corporate headquarters campus in Seattle’s South Lake Union submarket. Amazon occupies 98.2% of the net rentable area and its lease is structured with a 9.3% rent increase every three years and is fully guaranteed by the parent company. The lease commenced on September 2015 and expires in August 2031, well beyond the ARD of April 2025 and the final maturity of December 2026. In addition, the lease is structured with two five-year extension options and no early termination options. At issuance, the tenant was paying a rental rate of $33.98 per sf (psf) and, according to the September 2022 rent roll, the tenant is paying $37.13 psf with the next rent step occurring in September 2024 at $40.57 psf.

According to recent publications, Amazon announced a round of layoffs and will be terminating 9,000 employees, bringing the total number of layoffs to 27,000. This decision was tied to cost-cutting measures from the company due to the slowdown in the current economic environment and slow growth in its core retail business. The latest round of layoffs is expected to affect Amazon’s cloud computing, human resources, advertising, and Twitch livestreaming business and it is uncertain whether this will affect the subject property. DBRS Morningstar will continue to closely monitor for developments but notes a mitigating factor in the lease guarantee from the parent company.

According to the trailing nine month ended September 30, 2022, financials, the property was 100.0% occupied and reported an annualized net cash flow (NCF) figure of $12.1 million, an increase from the year-end (YE) 2021 NCF of $11.0 million, YE2020 NCF of $10.6 million, and the DBRS Morningstar NCF of $10.9 million. DBRS Morningstar assumed a straight-line credit for Amazon’s rent over the loan term given its consideration as a long-term credit tenant.

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 (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; https://www.dbrsmorningstar.com/research/410912/north-american-cmbs-surveillance-methodology).

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].