Morningstar DBRS Confirms Credit Ratings on All Classes of NYT 2019-NYT Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2019-NYT issued by NYT 2019-NYT Mortgage Trust as follows:

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

All trends are stable.

The credit rating confirmations and Stable trends reflect the long-term strength of the credit profile of the transaction. The transaction is secured by the borrower's leasehold interest on a portion of the New York Times Building, a Class A office building in midtown Manhattan. Collateral for the loan includes office space on floors 28 through 50, representing approximately 715,000 square feet (sf), and 23,000 sf of ground floor retail space. Floors 2 through 27, which are occupied by the New York Times, are not a part of the collateral. The collateral office property benefits from its desirable location in Midtown Manhattan, a factor that has contributed to historically high occupancy rates. Performance remains consistent with the analysis considered at Morningstar DBRS' previous credit rating action in April 2024, when the Morningstar DBRS capitalization (cap) rate and the qualitative adjustments derived at issuance were reassessed considering the shift in demand and use for office property types in the last several years. The resulting analysis contributed to credit rating downgrades for the four most junior bonds in the capital stack as part of that credit rating action in April 2024.

The $635.0 million floating rate, interest-only whole loan has a current maturity date in December 2024. The loan was structured with a two-year initial term and five one-year extension options; As of the December 2024 reporting, the servicer's commentary indicated that the borrower had exercised the fifth and final extension option. The whole loan includes $515.0 million of senior debt and $120.0 million of unsecuritized subordinate debt. Additionally, there is $115 million of unsecured mezzanine debt that is held outside of the transaction. The loan is sponsored by Forest City Enterprises L.P., and is owned by Brookfield Property Partners L.P., which contributed $279.6 million of sponsor equity at loan closing to acquire the property.

According to the trailing six months ended June 30, 2024, financials, the collateral generated an annualized net cash flow (NCF) of $34.5 million (reflecting a debt service coverage ratio (DSCR) of 0.88 times (x)), a significant decline from the YE2023 NCF figure of $43.3 million (a DSCR of 1.21x) and the Morningstar DBRS NCF of $43.5 million. The decline is attributed to two separate 11-month rent abatements for the largest tenant at the property, Datadog Inc. (Datadog) (30.9% of net rentable area (NRA)). The abatements total $12.4 million, and the tenant began receiving the abatements in September 2022 and June 2023. In addition, according to recent servicer commentary, the tenant will receive approximately $15.2 million in additional abatements between December 2024 to March 2026, tied in part to additional space the tenant will lease from vacating tenant, Cam North America, LLC (Cam North America), as discussed below.

According to the June 2024 rent roll, the property was 98.4% occupied, unchanged from YE2023. Recent servicer commentary confirmed that Cam North America (13.2% of NRA) will be vacating its space at lease expiration in December 2024; however, Datadog will backfill all three floors previously occupied by the tenant and will receive rent abatements through March 2026. In addition, the servicer confirmed that the second-largest tenant, Covington and Burling LLP (26.2% of NRA, lease expiring September 2027), will be moving a few blocks south, to 30 Hudson Yards, as part of an expansion of its space. The tenant is expected to vacate mid-2025 but, as there are no termination or contraction options available, will remain on the hook for its $17.5 million annual rent obligation until lease expiration in 2027.

Although the pending departure of the second-largest tenant is a noteworthy development, Morningstar DBRS notes that the sponsor will have several years of lead time to pursue a replacement tenant and given the subject's location and demand within the submarket, it seems likely there will be prospects for the space. According to Reis, the submarket vacancy rate at Q3 2024 was 12.9%, with Reis forecasting vacancy rates to move to 13.7% by 2027 when the tenant's lease expires. The property's average rental rates as of the June 2024 rent roll were $95.20 per square foot (psf) compared with the Midtown West submarket figures of $69.50 psf.

In the analysis for this review, Morningstar DBRS maintained the 7.00% cap rate applied at the previous credit rating action in April 2024, resulting in a Morningstar DBRS value of $622.0 million, a variance of -35.7% from the issuance appraised value of $967.8 million. The Morningstar DBRS value implies a loan-to-value (LTV) ratio of 82.8%, compared with the LTV of 50.9.2% on the issuance appraised value and the Morningstar DBRS LTV of 76.9% at issuance. As part of this analysis, Morningstar DBRS maintained positive qualitative adjustments totaling 5.25% in the LTV sizing benchmark to reflect the low historical vacancy, low cash flow volatility, and desirable property quality.

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-EXT 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 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 info-DBRS@morningstar.com.

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 Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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 (December 3, 2024), https://dbrs.morningstar.com/research/444064

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023).

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