Morningstar DBRS Confirms Credit Ratings on All Classes of SFAVE Commercial Mortgage Securities Trust 2015-5AVE

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-5AVE issued by SFAVE Commercial Mortgage Securities Trust 2015-5AVE as follows:

-- Class A-1 at AAA (sf)
-- Class A-2A at AAA (sf)
-- Class A-2B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the continued performance of the transaction, which remains in line with Morningstar DBRS' expectations since the last review, evidenced by the continued stable cash flows and single-tenant occupancy at the subject.

The transaction consists of a $1.25 billion fixed-rate loan that is interest only (IO) for the 20-year term. The loan is secured by the borrower's interest in the condominium unit and related interests in the land and improvements that comprise the 12-story, 655,238-square-foot (sf) Saks on Fifth retail building in New York. The building has served as the flagship store for the Saks Fifth Avenue brand (Saks) since 1924 and has been a mainstay in the heart of Manhattan for more than 90 years. The property is owned and occupied by affiliates of the Hudson's Bay Company (HBC; the sponsor), which previously owned the Saks brand. In July 2024, HBC spun off Saks and Saks Off Fifth into a new U.S. holding company, Saks Global. The sponsor bifurcated the land and improvements as part of the original refinancing transaction. The sponsor owns the fee interest on the land and executed an absolute triple net 99-year lease to the retail building owner, 12 East 49th Street LLC, which is also the ground lessee. At issuance, the building owner (ground lessee) paid the borrower annual rent of $62.5 million, which increases annually by the greater of 3.25% or CPI. According to the October 2024 rent roll, the annual rent amounted to $96.2 million. The ground lessee pays all expenses related to the land and building, then leases the building to Saks.

The building is 100% occupied by Saks under an initial 30-year operating lease with 12 East 49th Street LLC, expiring in December 2044. At issuance, Saks paid an annual amount of $160.0 million with an abatement of up to $20.0 million for capital improvements. The annual payment under the operating lease is subject to rent steps of 3.25% per year. The operating lease is not collateral for the loan, and the lender is not obligated to recognize it in the event of a mortgage foreclosure.

According to the trailing 12-month financials ended January 31, 2025, the collateral reported a net cash flow (NCF) of $87.0 million, with a debt service coverage ratio (DSCR) of 1.55 times (x), which is slightly below the YE2023 and above YE2022 NCF figures of $87.3 million (DSCR of 1.57) and $75.9 million (DSCR of 1.36x), respectively.

At the last review in May 2024, Saks had reportedly placed a bid for one of New York's three available licenses that would allow the luxury department store to build and operate a full-scale casino totaling 200,000 sf on the top three floors of the store. However, since that time several media outlets have indicated that Saks has abandoned its plans for a gaming license, ending the company's plans of a casino atop its flagship store. A Saks spokesperson told media sources the company is prioritizing other strategic initiatives going forward. Saks also continues to operate its coworking space known as SaksWorks at the subject property.

Morningstar DBRS maintained its look-through approach for the building with the Morningstar DBRS NCF of $91.0 million, assuming it is being used for a mix of retail and office space. Using a capitalization rate of 6.75%, reflecting the subject's location and quality, the resulting Morningstar DBRS value was $1.3 billion, representing a variance of -63.6% from the appraised value of $3.7 billion at issuance. At issuance, the appraiser valued the ground lease at $2.1 billion. The Morningstar DBRS value implies a loan-to-value ratio (LTV) of 92.7% compared with the LTV of 33.8% on the appraised value at issuance. Morningstar DBRS also maintained its qualitative adjustments, totaling 5.5% to reflect the stable single-tenant occupancy, favorable property quality, and strong market fundamentals.

The Morningstar DBRS credit ratings assigned to Classes A-1, A-2B, B, C, and D, are higher than the results implied by the LTV sizing benchmarks. These variances are warranted given the value Morningstar DBRS used for its analysis results in a 63.6% haircut to the issuance appraised value, while the property has a prime location, and the escalating ground rent sufficiently covers the debt service obligations.

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, or 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 (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 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.

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 (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 3, 2024): https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024): https://dbrs.morningstar.com/research/438283

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