Press Release

Morningstar DBRS Confirms Credit Rating on Mortgage Loan Made to Morguard Corporation & 131 Queen Street Limited

Commercial Mortgages
February 14, 2024

DBRS Inc. (Morningstar DBRS) confirmed its credit rating on the mortgage loan made to Morguard Corporation & 131 Queen Street Limited (the Borrower) by a major Canadian financial institution as follows:

-- 5.31% Mortgage Loan Due November 1, 2026, at AAA

The trend is Stable.

With this review, Morningstar DBRS removes the 5.31% Mortgage Loan Due November 1, 2026, certificate (the Certificate) from Under Review with Developing Implications, where it was placed on October 16, 2023, following the release of the Morningstar DBRS “Global Methodology for Rating Credit Tenant Leases” (the Methodology).

Morningstar DBRS placed the Certificate Under Review with Developing Implications as the subject transaction is viewed as a Quasi-Credit Tenant Lease (CTL) transaction, whereby the rated note does not fully amortize during the corresponding lease term for the credit tenant. As part of its ongoing surveillance, Morningstar DBRS has reviewed the transaction in conjunction with the Methodology with consideration for updated performance information of the asset, its location within the market, and the overall property sector expectations.

The credit rating confirmation reflects the stable performance of the underlying collateral, which is performing in line with Morningstar DBRS’ expectations. Given the nature of the Quasi-CTL transaction, which exposes investors to refinance risk and the related real estate risk of the property, Morningstar DBRS conducted a dark value analysis, as further detailed below, which supported the credit rating action.

The loan is secured by the borrower’s leasehold interest in a mixed-use building at 131 Queen Street in Ottawa. Built in 2006, the property is a 13-story building comprising 312,486 square feet (sf) of office space, 16,776 sf of retail space, and 36 furnished residential apartments. The subject is well located in downtown Ottawa and benefits from its proximity to Parliament Hill, the courthouse, and public transit. The primary tenant at the subject is the Government of Canada (rated as of September 8, 2023, at AAA with a Stable trend by Morningstar DBRS), which fully occupies the office component of the property. The tenant is on a triple net lease through August 2026, two months prior to the loan maturity date.

Given the lease guaranty from an investment-grade tenant, which will remain even if the tenant subleases all or a portion of the space, the primary credit risk associated with the transaction is refinance risk, as the tenant may elect to leave its space upon lease expiration, leaving the property vacant with an outstanding loan balance. As a result, Morningstar DBRS conducted a dark value analysis, assuming the credit tenant does not renew its lease and found that the dark value sufficiently covered the unamortized loan amount.

To determine the dark value, Morningstar DBRS assumes that, upon the maturity of the loan, the property is fully vacant, and after six months of down time, the property is re-leased to a market occupancy. In this case, because the property includes office, retail, and multifamily components, a blended market vacancy was assumed to account for the multiple components. The concluded market rent for the space is split across the components assuming $20.76 per square foot (psf) for office rents, $40.00 psf for retail rents, and $1,886 per unit/month for the multifamily rents. These assumptions resulted in a weighted-average (WA) rental rate of $22.86 psf for the entire space. Morningstar DBRS then assumed a stabilized blended vacancy rate of 11.1%, based on 11.2% for the office space, 20.0% for the retail space, and 5.0% for the multifamily space. The same expense ratio assumed when ratings were assigned in 2020 was maintained, resulting in a stabilized Morningstar DBRS Net Cash Flow of $6.0 million. A blended cap rate of 7.93% was applied, supported by market trends and incorporating a 100 basis point dark value adjustment to account for the time and risk to re-tenant the space. Tenant improvements of $25.0 psf and leasing commissions of 5.0% were maintained from the 2020 analysis and applied to the commercial space. The total leasing cost to stabilize, including the down time, during which a property owner will still have fixed operating expenses, was $12.1 million, resulting in a dark value of $59.3 million and a balloon loan-to-value ratio (LTV) of 47.9% based on the certificate maturity amount of $28.4 million.

A qualitative adjustment of 6.5% was applied for the subject’s above-average property quality and strong market fundamentals. The LTV Sizing was updated to reflect this analysis, which supported the credit rating confirmation.

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024;

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

All figures are in Canadian dollars unless otherwise noted.

The principal methodology applicable to the credit rating are the Global Methodology for Rating Credit Tenant Leases (October 11, 2023; and the North American CMBS Surveillance Methodology (March 16, 2023;

Other methodologies referenced in this transaction are listed at the end of this press release.

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.
Morningstar DBRS 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:

North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023;

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023;

North American Commercial Mortgage Servicer Rankings (August 23, 2023;

Legal Criteria for Canadian Structured Finance (June 20, 2023;

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