DBRS Morningstar Confirms Ratings on All Classes of MOFT 2020-B6 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates issued by MOFT 2020-B6 Mortgage Trust:

-- Class A at A (low) (sf)
-- Class B at BBB (low) (sf)
-- Class C at BB (low) (sf)
-- Class D at B (high) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the overall stable performance for the underlying collateral, a 314,400-square-foot (sf) Class A, LEED Gold-certified office building in Sunnyvale, California. The transaction benefits from the collateral property’s single tenancy in an investment-grade rated entity, with a lease expiring in 2029.

The transaction is secured by the first-lien mortgage loan on one of six identical buildings that make up the Moffett Place campus within the greater Moffett Park development, an approximately 519-acre office park which has been reveloped over the past 15 years and includes world leading software, technology, and creative tenants including Amazon.com, Inc., Microsoft Corporation, Yahoo! Inc., and Facebook, Inc. A June 2023 story by Commercial Observer reported Google had placed a total of 1.4 million sf of space up for sublease across various locations in Silicon Valley. Although several buildings within Moffett Park were included in the listed locations, the subject collateral (known as Building 6) has not been included in any publicly reported sublease listings by Google to date.

The loan is sponsored by an affiliate of Jay Paul Company, a privately held real-estate-development firm with a focus on the acquisition and development of high-end office projects for large Silicon Valley technology firms. The $67.4 million subject transaction is part of a $200 million whole loan and consists of two junior notes totalling $66.9 million and $0.5 million of senior debt, respectively. The seven pari passu senior notes totalling $132.6 million are securitized in the BMARK 2020-B20 and BMARK 2020-B19 transactions (not rated by DBRS Morningstar), and there is $49.0 million in mezzanine financing. The fixed-rate loan is interest only throughout the 10-year term and is scheduled to mature in August 2030.

According to the December 2022 rent roll, the building is 100% occupied by Google LLC (Google), whose parent company, Alphabet Inc., is rated investment grade. Google’s lease is scheduled to expire in January 2029, prior to loan maturity. However, the tenant has two seven-year renewal options and the loan is structured with a cash sweep if the tenant has not provided a renewal notice 20 months prior to lease expiration. The cash sweep is expected to generate $12.3 million (approximately $40.00 per square foot (psf)) for future re-leasing costs. Additionally, Google’s current rental rate is $50.64 psf, which is below the appraiser’s estimated market rent of $60.00 psf on a triple-net basis at issuance. However, the lease is structured with annual rent steps of approximately 2.0%, and a renewal would be at market rental rates. The year-end (YE) 2022 net cash flow (NCF) was $15.6 million, compared with $10.5 million at YE2021, and the DBRS Morningstar derived NCF of $14.6 million at issuance. Additionally, the debt service coverage ratio was 1.56 times (x) at YE2022, up from 1.05x at YE2021. The increase is a result of Google’s base rent payments, which commenced in May 2021.

The transaction benefits from Google’s long-term and investment-grade tenancy, the property’s desirable location in a prominent area of Silcon Valley, and strong sponsorship. While Google’s lease expires prior to loan maturity, the loan structure, which calls for a cash flow sweep in the absence of a renewal is a noteworthy mitigant, as is the general desirability of the collateral within the submarket despite the uncertainty surrounding demand in the near to longer term.

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

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
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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)

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