DBRS Morningstar Confirms All Ratings of SLG Office Trust 2021-OVA

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates (the Certificates), issued by SLG Office Trust 2021-OVA as follows:

-- Class A at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)
-- Class HRR at B (low) (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 $3.0 billion mortgage loan is secured by the borrower’s fee-simple interest in One Vanderbilt, a 1.6 million-square-foot (sf) ultra-luxury Class A office high rise in Midtown Manhattan, New York. In addition to more than 1.5 million sf of luxury office space, the property includes a 67,000-sf observation deck (the Summit) and approximately 32,000 sf of high-end commercial space and is directly adjacent to Grand Central Terminal. The property was developed by the sponsor, SL Green Realty Corp., which owns 71.0% of the property. The remaining 29.0% is owned by The National Pension Service of Korea, one of the largest pension funds in the world, and Hines Interests Limited Partnership, one of the largest privately held real estate investors. The fixed-rate loan is interest-only (IO) throughout its 10-year loan term and matures in July 2031.

According to the December 2022 rent roll, the property was 96.7% occupied, in line with previous years. The property benefits from long-term, investment-grade tenancy, including the two largest tenants, TD Bank and Securities (20.8% of net rentable area (NRA); expiring July 2041) and Carlyle Investment Management (11.8% of NRA; expiring September 2041), which, combined, account for approximately 65.0% of annual rental income. According to Reis, Class A office properties within the Grand Central submarket reported vacancy and effective rental rates of 12.5% and $81.31 per square foot (psf), respectively. The property is outperforming the submarket and reported vacancy and effective rental rates of 3.3% and $91.51 psf, respectively. Additionally, the property benefits from minimal rollover risk, with only 5.2% of NRA expected to roll during the loan term.

The annualized net cash flow (NCF) for the period ended September 30, 2022, was $26.5 million, compared with a loss of $27.5 million at YE2021 and the DBRS Morningstar derived NCF of $175.3 million. DBRS Morningstar accounted for the collateral’s recent delivery in 2021 and the majority of tenants still in free rent and/or buildout phases at issuance. Therefore, the cash flow is not reflective of stabilized property performance.

DBRS Morningstar expects the collateral to continue to improve toward stabilization levels given the property benefits from strong sponsorship, luxury amenities, a prime location, and long-term, investment-grade tenancy.

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).

Class X is an IO certificate that references 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.

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

DBRS Limited
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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)