Morningstar DBRS Places All Classes of Worldwide Plaza Trust 2017-WWP Under Review With Negative Implications

DBRS Limited (Morningstar DBRS) placed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-WWP issued by Worldwide Plaza Trust 2017-WWP Under Review with Negative Implications as follows:

-- Class A at BBB (low) (sf)
-- Class X-A at BBB (sf)
-- Class B at BB (low) (sf)
-- Class C at B (low) (sf)
-- Class D at CCC (sf)
-- Class E at CCC (sf)
-- Class F at CCC (sf)

There are no trends for these credit rating actions.

The underlying loan for this transaction is secured by a Class A office property in Manhattan. At the previous credit rating action in July 2024, Morningstar DBRS downgraded its credit ratings across the capital stack to reflect increased risks for the loan due to the then upcoming departure of the second-largest tenant at the property, Cravath, Swaine & Moore LLP (Cravath; 30.1% of the net rentable area (NRA)), who departed at lease expiration in August 2024. The loan subsequently fell delinquent and was transferred to the special servicer in September 2024. These developments were contemplated as part of the analysis for the July 2024 credit rating action, which also resulted in Negative trends being placed on Classes X-A, A, B and C. For further information on that credit rating action, please see the press release dated July 24, 2024, on the Morningstar DBRS website.

The largest remaining tenant, Nomura Holding America, Inc. (Nomura; 34.3% of the NRA, has a lease expiry in September 2033) and has already downsized once since issuance, with a remaining option to further downsize or terminate its lease entirely in January 2027 (notice must be given by July 1, 2025). On March 26, 2025, Bloomberg released an article noting that Nomura has been in talks for space at the Penn 2 tower, which is also owned by the subject loan sponsor. According to the most recent servicer commentary, the servicer does note Nomura is working with the sponsor for either a renewal and lease extension at the subject property or a move to another location within the sponsor's portfolio. Given these developments which suggest the collateral property could be nearly fully vacant within the next few years (barring any further leasing activity) Morningstar DBRS has placed all rated classes Under Review - Negative Implications.

Whole-loan proceeds of $940.0 million and $260.0 million of mezzanine debt facilitated the recapitalization financing of the collateral. The whole loan consists of $616.3 million of senior debt and $323.7 million of junior debt, of which the entirety of the junior debt and $381.3 million of the senior debt is held in the trust. The fixed-rate loan is interest only (IO) through its 10-year term and is sponsored by a joint venture between SL Green Realty Corporation and RXR Realty LLC. The property totals 1.8 million square feet (sf) and occupies an entire block between 49th Street and 50th Street at 825 Eighth Avenue in New York City's Midtown West submarket. The property also includes 10,592 sf of ground-level retail space, and the C and E subway lines are accessible via a station beneath the building.

Following the transfer to special servicing in September 2024, the loan received a modification in January 2025 which allowed for the use of all reserve funds to be utilized to fund operating shortfalls through the earlier of Nomura providing notice of its lease termination or July 1, 2025. Since that time, the sponsor and the special servicer have been engaged in ongoing discussion regarding the workout strategy, but nothing has been finalized to date.

According to the most recent financials, the subject reported a June 2024 occupancy rate of 90.1%; however, when factoring in the departure of Cravath, the occupancy rate drops to approximately 60% with the largest tenant, Nomura occupying just over half of the currently leased space. The remaining tenancy outside of Nomura is quite granular with minimal rollover concerns outside of Nomura's termination option in July 2025. According to the property's website, approximately 38.0% of the NRA listed as available for lease. At issuance, Nomura occupied 819,906 sf (40.0% of NRA)but exercised a termination option for part of its space in January 2022. The tenant gave back two floors and paid a termination fee of $11.2 million, which is currently held by the servicer, outside of the reserve accounts.

As of the trailing six-month financials for the period ended June 30, 2024, the subject property reported a net cash flow (NCF) and debt service coverage ratio (DSCR) of $76.8 million and 2.23 times (x), respectively, in line with historical figures. The most recent financials do not capture the departure of Cravath, which is expected to push the DSCR below break even.

During the July 2024 rating action, Morningstar DBRS conducted a dark value analysis for the subject given the possibility that the property could become nearly fully vacant within the next few years for the reasons as described above. Morningstar DBRS assumed that, at the time of the loan maturity, the property would be fully vacant, and after two years of downtime, the property would be re-leased to a market occupancy. The concluded market rent for the space was $70.00 psf and a stabilized vacancy rate of 15.0%, which recognizes the current vacancy level of the submarket. An expense ratio of 45.6% was applied, based on the YE2023 figure, resulting in a Morningstar DBRS stabilized NCF of $79.0 million. A cap rate of 9.0% was applied, supported by market trends and incorporating a 100 basis point dark value adjustment to account for the time and risk to re-tenant the space. Tenant improvements of $90 psf and leasing commissions of 4.0% were assumed, based on available comparable leases on file with Morningstar DBRS. The total leasing cost to stabilize was $374.6 million, based on a two-year downtime adjustment given the size of the property, resulting in a dark value of $503.6 million and a whole-loan LTV of 186.6%. Based on the whole loan amount of $940.0 million, a 1.0% liquidation fee, and one year of principal and interest advances, the total trust exposure could reach approximately $980.0 million. The results of liquidation analysis suggested a loss severity exceeding 45%, which would fully reduce the balance of Class C through the unrated Class HRR and nearly 50% of Class B, supporting the credit rating downgrades. At the time of the July 2024 rating action, Morningstar DBRS gave credit to in-place reserves in its liquidation analysis; however, following the loan modification in January 2025, which allows the borrower to utilize reserve funds to fund operating shortfalls, Morningstar DBRS removed that credit in the analysis for this credit rating action. Excluding that amount increases the loss severity to approximately 51%, with the realized losses contained to the same place in the capital stack, Class B and below.

Although losses could be realized as high as Class B, Morningstar DBRS does note that there is a two year gap between now and the scheduled loan maturity, providing the sponsor some time to secure tenants and stabilize the property. However, recent leasing trends at the subject property, declining submarket dynamics and upcoming potential termination option for Nomura in July 2025, do suggest the credit risk profile for the transaction is heightened from the July 2024 action, supporting the Under Review - Negative Implications designation with this credit rating action.

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 factor(s) 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 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 (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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

This credit rating is Under Review with (insert appropriate Implications designation). Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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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

-- Legal Criteria for U.S. Structured Finance (December 03, 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. (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.