Morningstar DBRS Confirms Credit Ratings on All Classes of VNDO Trust 2016-350P

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-350P issued by VNDO Trust 2016-350P as follows:

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

All trends are Stable.

The credit rating confirmations and Stable trends reflect Morningstar DBRS' expectation that the underlying property's performance will remain steady with the master lease agreement in effect through 2032, five years beyond the loan's maturity. Morningstar DBRS notes that there is a significant amount of equity behind the subject loan, with continued investments from the loan's sponsor illustrating its continued commitment to the ongoing development project discussed further below.

The collateral for the trust consists of a $233.3 million portion of a $400.0 million whole loan amount, represented by four pari passu A notes ($296.0 million) and two subordinate B notes ($104.0 million). The trust collateral consists of two senior A notes totaling $129.3 million and the two subordinate B notes. The two remaining A notes, totaling $166.7 million, were contributed to the GSMS 2017-GS5 ($100.0 million; rated by Morningstar DBRS) and JPMDB 2017-C5 ($66.7 million; non-rated) transactions. The loan is secured by the first mortgage on 350 Park Avenue, a Class A office property in Midtown Manhattan's Plaza District submarket, between 51st Street and 52nd Street. The 30-story property totals 570,784 square feet (sf), including four ground-floor retail spaces totaling 17,144 sf.

The loan was previously specially serviced in November 2022 because of a complex consent request in relation to a new agreement between the sponsors, Vornado Realty Trust (Vornado) and Rudin, and Citadel Enterprises America LLC (Citadel), which is an affiliate of Kenneth C. Griffin, Citadel's founder and chief executive officer. According to a December 9, 2022, press release from Vornado, major terms of the agreement include the following: (1) Citadel to enter into a master lease with Vornado for 350 Park Avenue (subject) on an "as is" basis for 10 years retroactive to June 2022 at an annual rent of $36 million ($63 per sf gross); (2) Citadel to also enter into a master lease with Rudin for the adjacent property at 40 East 52nd Street (non-collateral); and (3) Vornado and Rudin to enter into a joint venture to purchase 39 East 51st Street for $40 million, with the eventual aim of creating a premier development site between the three aforementioned parcels. From October 2024 to June 2030, Griffin will have the following options: (1) acquire a 60.0% interest in a joint venture with Vornado and Rudin that would value the site at $1.2 billion to build a 1.7 million-sf office tower with Citadel occupying approximately 50.0% of the net rentable area (NRA) on a pre-negotiated 15-year lease; or (2) exercise an option to purchase the entire combined site for $1.4 billion without participation from Vornado and Rudin.

According to a January 25, 2023, press release from Vornado, the agreement as described above has received all necessary third-party approvals. Most recently, the public review process is slated to commence in early 2025 with an expected project completion in 2032, according to a number of online news articles.

According to the September 2024 rent roll, the collateral is master leased to Citadel extending to June 2032; however, the building has an in-place occupancy rate of 84.8%. The largest collateral tenants included Citadel Enterprise Americas (67.3% of the NRA), Marshall Wace North America (8.3% of the NRA, lease expiry October 2025), and Fidelity Brokerage Services (3.3% of the NRA, lease expiry in December 2025). Although the second- and third-largest tenants have upcoming lease expirations in 2025, the risk is mitigated by the in-place master lease. According to the provided rent roll, Marshall Wace North America is receiving a full abatement on its office rent. As of the most recent financials, the loan reported an annualized net cash flow (NCF) of $33.0 million (debt service coverage ratio (DSCR) of 2.08 times (x)) for the trailing six months ended June 30, 2024, which remains in line with the YE2023 figure of $35.1 million (DSCR of 2.25x).

Morningstar DBRS' previous credit rating action in April 2024 included an update to the asset's valuation. For more information regarding the approach and analysis conducted, please refer to the press release titled "Morningstar DBRS Takes Rating Actions on North American Single-Asset/Single-Borrower Transactions Backed by Office Properties," published on April 15, 2024. For purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from the April 2024 review, which was based on a capitalization rate of 7.25% applied to the Morningstar DBRS NCF of $29.7 million. Morningstar DBRS also maintained positive qualitative adjustments to the loan-to-value ratio (LTV) sizing benchmarks totaling 5.5% to reflect the subject property's quality and in-place master lease providing long-term stable cash flows. The Morningstar DBRS concluded value of $409.2 million ($717 per sf) represents a variance of -42.4% from the issuance appraised value of $710.0 million and implies a whole loan LTV of 97.8%. The projected post-development value estimates for the site implied by the purchase options cited in Vornado's December 9, 2022, press release ranged between $1.2 billion and $1.4 billion. Morningstar DBRS believes the whole loan balance of $400.0 million remains well insulated against loss.

Morningstar DBRS published a press release on February 19, 2025, outlining credit rating actions taken on the COMM 2013-300P Mortgage Trust transaction, which is secured by the borrower's fee-simple interest in 300 Park Avenue, also known as the Colgate Palmolive Building, a Class A, LEED Silver-certified office tower one block east of the subject property in this transaction. Morningstar DBRS valued the 300 Park Avenue building at $629 psf, which remains below the $717 psf for the subject property. The difference in valuation is justified because of the ongoing commitment from the loan's sponsor to redevelop the subject property into a premier development with value estimates in excess of $1 billion, coupled with the in-place master lease that extends five years past the loan's maturity.

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) https://dbrs.morningstar.com/research/437781.

Class X-A 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 (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.