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

DBRS Limited (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 transaction's overall stable performance, evidenced by the underlying collateral property's strong residential occupancy rate of 92.5% as of the March 2024 rent roll and healthy debt service coverage ratio (DSCR) of 1.43 times (x) as of the trailing 12 months (T-12) ended March 31, 2024.

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 Manhattan's Tribeca neighborhood known as Independence Plaza. 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 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 fixed-rate loan is interest only (IO) throughout its seven-year loan term and matures in July 2025 with no extension options.

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 rent roll from March 2024, there were 690 units listed as fair market, 265 units under Section 8, and 274 units within the Landlord Rental Assistance Program (LRAP). The average rental rate for these units was $5,758 per unit, $5,550 per unit, and $1,887 per unit, 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 Q3 2024 Reis market data for the West Village/Downtown New York area, the effective rent per unit is $5,432 per unit with a 3.4% vacancy rate.

The residential portion of the property was 92.2% occupied as of the March 2024 rent 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. The largest commercial tenant, Patriot Parking, LLC (representing 14.2% of total NRA), leases the entire 550-space parking garage and recently renewed its lease through 2034.

The loan reported a net cash flow (NCF) of $41.4 million for the T-12 ended March 31, 2024, an increase over the last several reporting periods, but still below the Morningstar DBRS NCF of $43.5 million derived when credit ratings were assigned in 2018. The differential is primarily a result of increased operating expenses. However, revenues have grown since the onset of the coronavirus pandemic when concessions were provided and are currently outpacing pre-pandemic revenues and Morningstar DBRS' expectations. The DSCR has increased slightly to 1.43x as of March 2024.

For this analysis, Morningstar DBRS derived a value of $676.3 million based on a haircut to the NCF for the T-12 ended March 31, 2024, and maintained a capitalization rate of 6.0%. The resulting Morningstar DBRS loan-to-value ratio (LTV) is 99.8% on the mortgage loan. Positive qualitative adjustments totaling 5.0% were applied to the LTV sizing benchmarks to account for the excellent Tribeca location, good property quality, strong market fundamentals, and upside potential for below-market units.

The credit ratings assigned to Classes D and E are 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.

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/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 (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

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 is North American CMBS Surveillance Methodology (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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 (December 13, 2024), https://dbrs.morningstar.com/research/444612
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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.

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