Morningstar DBRS Confirms Credit Ratings on All Classes of COMM 2016-787S Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-787S issued by COMM 2016-787S Mortgage Trust as follows:

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

All trends are Stable.

The credit rating confirmations reflect Morningstar DBRS' current outlook for the transaction as evidenced by the stable performance of the underlying collateral, a 1.7 million-square-foot (sf), Class A office building known as the Axa Equitable Center in Midtown Manhattan.

The $780.0 million whole loan consists of eight senior pari passu A notes totaling $566.0 million and one $214.0 million junior B note. The $640.0 million subject transaction is secured by six senior A notes totaling $426.0 million and the junior B note. The two remaining senior A notes were contributed to the DBJPM 2016-C1 Mortgage Trust (rated by Morningstar DBRS) and JPMDB Commercial Mortgage Securities Trust 2016-C2 (not rated by Morningstar DBRS) transactions. The fixed-rate, interest-only (IO) loan has a 10-year term and is scheduled to mature in February 2026.

This property benefits from long-term investment-grade tenancy and its advantageous location near public transportation, including access to Times Square and Grand Central Terminal. The loan is sponsored by Fifth Street Properties, LLC, a joint venture between the California Public Employees' Retirement System and CommonWealth Partners LLC. At closing, the borrower contributed $975.0 million of cash equity to purchase the property, or 51.7% of the net acquisition cost of $1.89 billion.

The net cash flow (NCF) for the trailing 12-month period ended June 30, 2024, was $65.2 million, reflective of a debt service coverage ratio of 2.96 times. The NCF figure is relatively in line with the Morningstar DBRS NCF of $65.4 million derived in 2020 and represents an improvement over the YE2023 NCF of $60.3 million.

The property was 94.4% occupied as of June 2024, an improvement from the prior year's occupancy rate of 88.7%. The largest tenants at the property are Sidley Austin LLP (22.5% of the net rentable area (NRA); lease expiration in May 2037)), Willkie Farr & Gallagher LLP (17.7% of the NRA; lease expiration in August 2027), and BNP Paribas S.A (BNP; 17.3% of the NRA; lease expiration in December 2041). In July 2024, Willkie Farr & Gallagher LLP announced that the firm signed a 20-year lease to remain at the property, effectively extending the term through 2047. BNP previously occupied 517,200 sf (29.4% of the NRA) but gave back approximately 127,100 sf (9.3% of the NRA) of space in 2022, in exchange for signing a long-term lease at a reduced rental rate of $46.97 per square foot (psf), down from $76.07 psf. The top five tenants at the property collectively represent approximately 80.0% of the total NRA. Near-term tenant rollover is nominal with leases representing less than 4.0% of the NRA scheduled to expire within the next 12 months. According to Q4 2024 Reis data, office properties within the Midtown West submarket reported average vacancy and effective rental rates of 13.7% and $69.43 psf, respectively.

In the analysis for this review, Morningstar DBRS maintained the 7.75% cap rate applied at the previous credit rating action in April 2024, resulting in a Morningstar DBRS value of $843.3 million, a variance of -56.4% from the issuance appraised value of $1.9 billion. The Morningstar DBRS value implies a loan-to-value ratio (LTV) of 92.5%, compared with the LTV of 40.3% on the issuance appraised value. In addition, Morningstar DBRS maintained positive qualitative adjustments totaling 4.0% in the LTV sizing benchmarks to reflect the low cash flow volatility, Class A property quality, and market fundamentals.

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

Class X-A is an IO certificate that references a single rated tranche or multiple rated tranches. The IO credit 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 (February 28, 2025): https://dbrs.morningstar.com/research/448963.

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
DBRS Tower, 181 University Avenue, Suite 700
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 (February 28, 2025): https://dbrs.morningstar.com/research/448962

-- 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.