DBRS Morningstar Confirms Ratings on All Classes of 225 Liberty Street Trust 2016-225L

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates issued by 225 Liberty Street Trust 2016-225L as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X at A (sf)
-- Class C at A (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying collateral, which has remained in line with DBRS Morningstar’s expectations since issuance.

The loan is secured by a 2.4 million-square-foot (sf), Class A office property across from the World Trade Center site in Lower Manhattan. The subject is the largest of four towers that make up Brookfield Place, a mixed-use office development encompassing 7.1 million sf of office space and roughly 340,000 sf of lifestyle-oriented retail and public space. The property is subject to a long-term ground lease with the Battery Park City Authority whereby the annual rent is fixed at $5.1 million through its June 2069 expiration date. The $900.0 million fixed-rate whole loan consists of a $778.5 million trust loan, which is composed of $337.5 million of senior debt and $441.0 million of junior debt and three companion notes totaling $121.5 million held outside of the trust. The loan is interest only (IO) for the entire 10-year term with scheduled maturity in February 2026. The loan benefits from experienced sponsorship in Brookfield Property Partners L.P. At issuance, the tenant improvements were fully guaranteed by a subsidiary of the sponsor, Brookfield Office Properties Inc., which has Senior Unsecured Notes that are rated BBB (low) with a Stable trend by DBRS Morningstar (confirmed on March 31, 2022).

As of the December 2022 rent roll, the property was 88.6% occupied with an average rental rate of $60.24 per square foot (psf), compared with 87.0% at YE2021 and 88.8% at YE2020. The largest collateral tenants include Dotdash Meredith (28.5% of the net rentable area (NRA), lease expiry in December 2032), The Bank of New York Mellon (BNY; 13.8% of the NRA, lease expiry in December 2034), and OFI Global Asset Management (11.9% of the NRA, lease expiry in September 2028). BNY is rated AA (high) with a Stable trend by DBRS Morningstar (confirmed on October 5, 2022). BNY subleased its entire space to J.Crew on a 16-year sublease agreement in June 2018. J.Crew filed for Chapter 11 bankruptcy protection in May 2020, but after exiting bankruptcy in September 2020, it continues to occupy the subleased space at the subject. BNY, as the primary tenant, remains ultimately responsible for rent payments, ensuring the property's continued financial stability. There is a marginal rollover risk of only 2.2% of the subject’s NRA that has a lease expiration within the next 12 months. According to Reis, office properties in the Downtown submarket reported a YE2022 average vacancy rate of 14.3% and an asking rental rate of $61.14 psf, compared with the YE2021 vacancy rate of 11.4% with an asking rent of $59.75 psf.

According to the YE2022 financials, the loan reported a net cash flow (NCF) figure of $57.6 million (debt service coverage ratio (DSCR) of 1.35 times (x)), compared with the YE2021 NCF of $60.2 million (DSCR of 1.42x) and DBRS Morningstar NCF of $60.8 million (DSCR of 1.45x). The drop in NCF was primarily driven by a 6.5% increase in real estate taxes and an 8.8% increase in utilities expenses from YE2021. Despite the dip in NCF, mitigating factors include the historically strong occupancy rate, the subject’s excellent location, the strong sponsorship strength, and the Class A property quality.

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 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
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 CMBS Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023)
https://www.dbrsmorningstar.com/research/410191/north-american-single-assetsingle-borrower-ratings-methodology

Rating North American CMBS Interest-Only Certificates (December 19, 2022)
https://www.dbrsmorningstar.com/research/407577/rating-north-american-cmbs-interest-only-certificates

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022)
https://www.dbrsmorningstar.com/research/402646/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria

North American Commercial Mortgage Servicer Rankings (September 8, 2022)
https://www.dbrsmorningstar.com/research/402499/north-american-commercial-mortgage-servicer-rankings

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022)
https://www.dbrsmorningstar.com/research/402153/interest-rate-stresses-for-us-structured-finance-transactions

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