Morningstar DBRS Confirms All Credit Ratings on MFTII 2019-B3B4 Mortgage Trust

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates Series 2019-B3B4 issued by MFTII 2019-B3B4 Mortgage Trust as follows:

-- Class A at AA (low) (sf)
-- Class B at BBB (sf)

The trends on both classes are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction as the collateral office buildings have been fully occupied since issuance by Meta Platforms, Inc. (Meta), an investment-grade tenant, on two 15-year leases expiring in May 2034.

The underlying loan is secured by the borrower's fee-simple interest in the Moffett Towers II - Buildings 3 and 4, two Class A office buildings totaling 701,266 square feet (sf) in Sunnyvale, California. The tenant also has access to and pays rent on 23,860 sf of allocated amenity space that is not part of the collateral. The buildings were built to suit for Meta (previously Facebook, Inc.) in 2019 and are LEED Platinum certified Class A facilities with strong curb appeal. The whole loan of $590.0 million consists of $350.0 million of senior debt, $155.0 million of junior debt, and $85.0 million of mezzanine debt. The transaction represents $5.0 million of the senior debt and the entire junior debt portion. The loan is sponsored by Jay Paul Company, a leading real estate development and investment management firm.

For the trailing nine months ended September 30, 2024, the loan reported an annualized net cash flow (NCF) of $43.2 million, compared with the YE2023 NCF of $42.1 million, YE2022 NCF of $41.2 million, and the Morningstar DBRS NCF of $43.3 million. Morningstar DBRS' NCF analysis straight-lined Meta's rent over the term of the loan, given its consideration as a long-term credit tenant. The leases include two 84-month extension options, each at 95.0% of the fair-market value, and no termination options are available. According to the September 2024 rent roll, the property achieves an average rental rate of $62.52 per sf (psf) up from $58.98 psf as of the June 2022 rent roll; this compares with the Q4 2024 average vacancy rate and effective rental rate of 22.8% and $38.72 psf, respectively, reported by Reis for office properties in the Santa Clara/Sunnyvale submarket.

Given the stable performance over the last year, Morningstar DBRS did not change its analytical approach for this credit rating action from the prior credit rating action in April 2024, when Morningstar DBRS updated its value for the collateral buildings from the issuance analysis to reflect an increased capitalization (cap) rate of 7.25%, up from the issuance cap rate of 6.50%. The Morningstar DBRS NCF of $43.3 million derived at issuance was maintained and the resulting value was $597.8 million, a -24.3% variance from the issuance appraised value of $790.0 million and an implied an all in loan-to-value ratio (LTV) of 84.5%. The increased cap rate reflects Morningstar DBRS' viewpoint that there has been a secular shift for the office sector, which has resulted in generally increased risks for the property type. Morningstar DBRS also maintained positive qualitative adjustments to the LTV sizing benchmarks, which total 7.5% to reflect the subject's quality, prime location, and long-term in-place tenancy to an investment-grade tenant. For more information regarding the approach and analysis conducted, please refer to the press release for this transaction dated April 15, 2024, on Morningstar DBRS' website.

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.

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 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 (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.