DBRS Morningstar Confirms Ratings on All Classes of SFAVE Commercial Mortgage Securities Trust 2015-5AVE

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-5AVE issued by SFAVE Commercial Mortgage Securities Trust 2015-5AVE as follows:

-- Class A-1 at AAA (sf)
-- Class A-2A at AAA (sf)
-- Class A-2B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)

All trends are Stable. The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations since last review.

The transaction consists of a $1.25 billion fixed-rate loan that is interest only (IO) for the 20-year term. The loan is secured by the borrower’s interest in the condominium unit and related interests in the land and improvements that comprise the 12-story, 655,238-square-foot (sf) Saks on Fifth retail building in New York. The building has served as the flagship store for the Saks Fifth Avenue brand (Saks) since 1924 and has been a mainstay in the heart of Manhattan for more than 90 years. The property is owned and occupied by affiliates of the Hudson’s Bay Company (HBC; the sponsor), which owns the Saks brand. The sponsor bifurcated the land and improvements as part of this refinancing transaction. The sponsor owns the fee interest on the land and executed an absolute triple net 99-year lease to the retail building owner, 12 East 49th Street LLC, which is also the ground lessee. At issuance, the building owner (ground lessee) paid the borrower annual rent of $62.5 million, which increases annually by the greater of 3.25% or CPI. According to the January 2023 rent roll, the 2023 annual rent amounted to $87.3 million. The ground lessee pays all expenses related to the land and building, then leases the building to Saks.

The building is 100% occupied by Saks under an initial 30-year operating lease with 12 East 49th Street LLC, expiring in December 2044. At issuance, Saks paid an annual amount of $160.0 million with an abatement of up to $20.0 million for capital improvements. The annual payment under the operating lease is subject to rent steps of 3.25% per year. The operating lease is not collateral for the loan, and the lender is not obligated to recognize it in the event of a mortgage foreclosure.

According to the YE2022 financial reporting, the collateral reported a net cash flow (NCF) of $75.9 million, with a debt service coverage ratio (DSCR) of 1.36 times (x), which is above the YE2021 and YE2020 NCF figures of $73.5 million and DSCR of 1.32x for both periods.

The property benefits from ongoing capital improvement projects and, most recently, unveiled a 40,000-sf men’s floor featuring 23 new brands added to the space, according to an article published by the Robb Report in January 2023. Furthermore, based on a publication in February 2023 by Business Insider, Saks placed a bid for one of New York’s three available licenses that would allow the luxury department store to build and operate a full-scale casino totaling 200,000 sf on the top three floors of the store. If successful in obtaining the license, the casino will serve as an attractive tourist destination. Apart from these recent developments, HBC had previously converted some the Saks space into coworking space, known as SaksWorks. In April 2022, according to the Wall Street Journal, HBC executed a $500 million deal with Convene, taking a majority stake in the flexible coworking and hybrid event space provider company. The subject location along with all SaksWorks were rebranded under Convene. In general, these events are viewed as a positive development for HBC and the subject transaction overall, as they display HBC’s willingness to pivot and invest in strategies that will make the most of its commercial real estate portfolio.

DBRS Morningstar’s ratings on Classes A-1, A-2B, B, C, and D vary by three or more notches from the results implied by the LTV Sizing Benchmarks on a look-through basis. The variances are warranted considering that the value DBRS Morningstar used for its analysis results in a 63.6% haircut to the issuance appraised value, the property has a prime location, and the escalating ground rent sufficiently covers the debt service obligations.

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.

Class X-A 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.

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)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

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].