DBRS Morningstar Confirms Credit Ratings on All Classes of Citigroup Commercial Mortgage Trust 2020-555

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2020-555 issued by Citigroup Commercial Mortgage Trust 2020-555 as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X at AA (sf)
-- Class D at AA (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)

All trends are Stable.

The credit rating confirmations reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance, evidenced by the strong occupancy and healthy debt service coverage ratio of 96.2% and 2.89 times, respectively, as of the most recent servicer reporting in September 2023.

The transaction is secured by the leasehold interest in 55 10th Avenue, a Class A luxury high-rise apartment in the Midtown West submarket of Manhattan, New York. The property consists of 598 apartment units, of which 150 are affordable housing under section 421-A; a charter school occupying nearly 110,000 square feet across eight floors; and ground-floor retail. The property features a rooftop terrace, two fitness centers, a yoga studio, and a bowling alley, among other high-end amenities. Units feature luxurious finishes, including oversized windows, quartz countertops, and stainless-steel appliances. The building sits just north of the Hudson Yards development, with good proximity to the Port Authority Bus Terminal and multiple subway lines.

The $400 million whole loan consists of $213.4 million of senior debt and $136.6 million of junior debt held in the trust, along with an additional $50.0 million of senior companion loan notes and $140 million of mezzanine debt held outside the trust. Whole-loan proceeds were used to repay existing debt, funded upfront reserves, and paid closing costs and stub interest. The interest-only (IO) loan has a fixed interest rate and is structured with a 10-year term.

According to the September 2023 rent roll, overall property occupancy was 96.2%, relatively in line with the issuance occupancy rate of 95.0%. The subject’s market-rent units were 95.7% occupied with an average rental rate of $5,883 per unit, while the rent-stabilized units were 94.7% occupied with average rental rates of $1,197 per unit. These figures are relatively in line with the DBRS Morningstar concluded rental rates for the market-rent and rent-stabilized units of $5,925 per unit and $1,127 per unit, respectively. The commercial space remains 100% occupied with an average rental rate of $35 per square foot. The collateral continues to benefit from strong submarket fundamentals with Reis reporting the Q3 2023 Midtown West submarket multifamily vacancy and average effective rental rate at 4.6% and $5,508 per unit, respectively.

Based on the servicer reported financials as of September 2023, the loan reported a trailing 12-month (T-12) net cash flow (NCF) of $27.1 million compared with the YE2022 NCF of $25.6 million and the DBRS Morningstar NCF of $25.2 million. At issuance, DBRS Morningstar derived a value of $430.8 million based on the DBRS Morningstar NCF of $25.2 million and a capitalization rate of 5.85%, which is a 51.3% haircut from the issuance appraised value of $885.2 million. The resulting DBRS Morningstar loan-to-value (LTV) ratio was 92.8% on the mortgage loan and 125.3% when factoring in the mezzanine loan. Positive qualitative adjustments totaling 5.00% were applied to the LTV sizing at issuance to account for limited cash flow volatility because of the property’s historically high occupancy, as well as the property’s above-average quality and good location within Midtown Manhattan.

While some rent-stabilized multifamily properties in the subject’s submarket have recently struggled with expense increases that have outpaced their ability to place upward pressure on rents due to legal constraints, the subject property benefits from a substantial tax abatement in exchange for providing affordable housing to the local community far outsizing the impacts of inflated expenses and the foregone rent associated with the rent-stabilized units. In the first 10 years alone, full taxes would have been $135.1 million, while the abated taxes should approximate $1.8 million, or 1.3% of the full tax amount. The percentage of full taxes owed under the abatement declines gradually over time, and the abatement remains fully in place through 2053.

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/416784 (July 4, 2023).

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 credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit 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 (October 19, 2023; https://www.dbrsmorningstar.com/research/422174)

-- Rating North American CMBS Interest-Only Certificates (December 13, 2023; https://www.dbrsmorningstar.com/research/425261)

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

-- Legal Criteria for U.S. Structured Finance (December 7, 2023; https://www.dbrsmorningstar.com/research/425081)

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