Morningstar DBRS Confirms All Credit Ratings on Independence Plaza Trust 2018-INDP

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-INDP issued by Independence Plaza Trust 2018-INDP as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-NCP at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-ENP at B (high) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, evidenced by the underlying collateral property’s strong residential occupancy rate of 95.6% as of the December 2023 rent roll and healthy debt service coverage ratio (DSCR) of 1.37 times (x) as of the trailing 12 months ended (T-12) September 30, 2023.

The loan is secured by the borrower’s fee and leasehold interest in a 1.5 million-square foot mixed-use, retail and multifamily property in the Tribeca neighborhood of Manhattan. The property consists of three 39-story apartment towers, connecting townhomes, and commercial space. The three towers are at 310 Greenwich Street, 40 Harrison Street, and 80 North Moore Street and provide a views of the city and the Hudson River.

The $675 million trust loan proceeds repaid existing debt of $551.6 million, returned $112.8 million of equity to the sponsor, and covered closing costs. The loan is interest only (IO) throughout its seven-year loan term and matures in July 2025.

The property was originally built in 1975 under an affordable housing initiative for lower- and middle-income families offered through tax breaks and subsidized mortgages. Since the property exited the program in June 2004, the borrower has been working to renovate the rent-regulated apartments as they become available and re-leasing them at market rates. According to the December 2023 rent roll, 682 units were listed as fair market; 268 units were Section 8; and 274 units were listed under the Landlord Rental Assistance Program (LRAP) with average monthly rental rates of $5,736, $4,589, and $1,888, respectively. This compares with a unit mix of 671 fair market units, 346 Section 8 units, and 307 LRAP units with average monthly market rental rates of $5,103, $4,552, and $1,724, respectively, when the transaction was securitized in June 2018. According to the Q4 2023 Reis market data for the West Village/Downtown New York, effective rent per unit is $5,363 with a 4.4% vacancy rate.

The December 2023 occupancy rate for the residential portion of the property was 95.6%, according to the most recent roll, which is up from 90.9% as of September 2022 and 84.1% as of September 2021. The multifamily component represents approximately 80% of the net rentable area (NRA) while the commercial space represents the remaining 20% of NRA and accounts for approximately 10% of base rental revenue. Overall occupancy has decreased slightly to 90.7% as of September 2023 from 92.5% at YE2022 and 94.3% at YE2021.

The net cash flow (NCF) for the T-12 ended September 30, 2023, was $39.9 million, an increase from the YE2022 NCF of $37.1 million and YE2021 NCF of $35.5 million, but still below the Morningstar DBRS NCF of $43.5 million when ratings were assigned in 2020. However, revenues have grown since the onset of the pandemic when concessions were provided and are currently outpacing pre-pandemic revenues and Morningstar DBRS’ expectations. The DSCR has increased slightly to 1.37x as of September 2023 from 1.28x at YE2022 and 1.22x at YE2021.

In the analysis for this review, Morningstar DBRS derived a value of $652.3 million based on a haircut to the NCF for the T-12 ended September 30, 2023, and maintained a capitalization rate of 6.0%. The resulting Morningstar DBRS loan-to-value ratio (LTV) is 103.5% on the mortgage loan. Positive qualitative adjustments totaling 5.0% were applied to the LTV sizing to account for the excellent Tribeca location, good property quality, strong market fundamentals, and upside potential for below-market units.

The Morningstar DBRS credit rating assigned to Classes C, D, E, and HRR is higher than the result implied by the LTV sizing benchmarks by three or more notches. This variance is warranted given Morningstar DBRS’ expectation that the loan will continue to exhibit stable to improved performance in the near term as units are renovated, the property’s desirable location, strong submarket fundamentals, and upside potential for below-market units.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
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) at https://dbrs.morningstar.com/research/427030.

Classes X-ENP and X-NCP are IO certificates that reference 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 Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit rating is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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:
https://dbrs.morningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024); https://dbrs.morningstar.com/research/428799
Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081)

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