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

DBRS, Inc. (Morningstar DBRS) 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 overall stable performance of the transaction, which is secured by the leasehold interest in 555 Tenth Avenue, a Class A luxury high-rise apartment in the Midtown West submarket of Manhattan, New York, as illustrated by a high occupancy rate and healthy debt service coverage ratio (DSCR). According to the most recent servicer reported figures as of November 2024, net cash flow (NCF) for the subject collateral reflects steady year-over-year growth. The annualized trailing-six-month (T-6) NCF for the period ended June 2024 represents an increase of 2.0% and 8.6% over the YE2023 and YE2022 figures, respectively. Although expenses have increased since issuance, largely driven by repairs and maintenance costs and utility expenditures, revenue growth has outpaced the expense growth overall.

In July 2023, the property suffered damages resulting in estimated losses exceeding $82.0 million after a construction crane atop a nearby building partially collapsed, crashing into the subject property before falling onto the street. The units and common areas affected were taken offline for repairs and the servicer has acknowledged receipt of at least $20 million in insurance proceeds. Morningstar DBRS posed a question to confirm the number of units affected and if all affected units and common areas have been repaired, re-leased, and covered by insurance proceeds; however, a response has not been received as of the date of this press release. According to the servicer reporting, the commercial units were fully occupied, and the residential units were 94.6% occupied as of June 2024, suggesting repairs have been completed and affected units are back online. Morningstar DBRS notes that Reis reports that the Q3 2024 average apartment vacancy for the Midtown West submarket is 4.3%, a marginal improvement from 4.6% a year prior, further supporting the property's ability to remain nearly fully occupied.

The underlying collateral 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 offers high-end amenities, including a rooftop terrace, two fitness centers, a yoga studio, and a bowling alley. The apartment units feature luxurious finishes, including oversized windows, quartz countertops, and stainless-steel appliances. The building sits just north of the Hudson Yards development, with proximity to the Port Authority Bus Terminal and multiple subway lines. In exchange for providing affordable housing to the local community, the subject property benefits from a substantial tax abatement. The percentage of full taxes owed under the abatement declines gradually over time, and the abatement remains fully in place through 2053. 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 $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, fund upfront reserves, and pay closing costs and stub interest. The interest-only (IO) loan has a fixed interest rate and is structured with a 10-year term.

Given there are now three full years' worth of year-end reporting for this loan available, with consistent cash flow growth over the issuance expectations exhibited for a majority of those periods, Morningstar DBRS considered an updated NCF and Morningstar DBRS Value as part of the analysis for this loan. Morningstar DBRS derived an NCF of $26.7 million, which is based on a 2.0% haircut to the YE2023 figure. A capitalization rate of 5.85% was applied, based on the issuance analysis, resulting in a Morningstar DBRS value of $457.3 million and an implied Morningstar DBRS Loan-to-Value Ratio (LTV) of 87.5%. Morningstar DBRS maintained positive qualitative adjustments to the LTV sizing totaling 5.00% 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 desirable location within Midtown Manhattan. The resulting LTV sizing benchmarks supported the credit rating confirmations with this review.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental, Social, or 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

Class X is an interest-only (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 Morningstar DBRS.

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

The principal methodology 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 (September 19, 2024), https://dbrs.morningstar.com/research/439699
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (October 28, 2024), https://dbrs.morningstar.com/research/441840

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.