Morningstar DBRS Changes Trends on Four Classes of Citigroup Commercial Mortgage Trust 2020-420K to Positive From Stable, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all Commercial Mortgage Pass-Through Certificates, Series 2020-420K issued by Citigroup Commercial Mortgage Trust 2020-420K as follows:

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

Morningstar DBRS changed the trends on Classes B, C, D, and E to Positive from Stable. The trends on the remaining classes are Stable.

The credit rating confirmations and Positive trends reflect the overall stable-to-improving performance of the underlying collateral, as evidenced by the year-over-year growth in net cash flow (NCF) and steady residential occupancy rates that have remained above 90.0% since issuance.

The loan is secured by the borrower's fee-simple interest in two 22-story luxury residential towers, 416 Kent and 420 Kent, located along the waterfront in the Williamsburg neighborhood of Brooklyn, New York. The high-rise buildings consist of 857 residential units and 18,827 square feet of commercial space with extensive amenities, including two parking garages consisting of 429 parking spaces. The sponsor and guarantor for the mortgage loan is Eliot Spitzer, the former governor of New York and the head of Spitzer Enterprises. Spitzer Enterprises has a 60-plus year history of developing, owning, and managing real estate in New York City and Washington, D.C.

The residential portion of the development benefits from significant 421-a tax exemptions during the loan term and, in return, the developer has designated between 20% and 25% of the units at each address as affordable housing (65 units at 416 Kent and 121 units at 420 Kent). The market-rate units at 416 Kent are generally not subject to any restrictions on rental rates, while the market-rate component at 420 Kent is subject to limitations on rental rate increases set by the New York City Rent Guidelines Board during the 25-year exemption period. The tax abatements exempt each of the properties from 100.0% of the taxes on the improvements and will extend beyond loan maturity. The $388.0 million whole loan consists of a mortgage loan totaling $298.0 million and a mezzanine loan totaling $90.0 million. The mortgage loan comprises $216.9 million in senior notes and $81.1 million in junior notes. The 10-year, fixed-rate, interest-only (IO) loan matures in November 2030 with no extension options.

As of the YE2024 financial reporting, the collateral was 98.5% occupied, generally in line with the prior year's occupancy rate of 96.9% and above the issuance occupancy rate of 83.3%. Similarly, NCF continues to trend upward with the YE2024 figure of $29.7 million (a debt service coverage ratio (DSCR) of 2.01 times (x)), higher than the YE2023 and YE2022 figures of $28.8 million (DSCR of 1.95x) and $24.4 million (DSCR of 1.66x), respectively. According to Reis, the Kings County submarket reported average asking rents of $3,240 per unit and an average vacancy rate of 3.8% as of Q1 2025. The underlying collateral continues to outperform the submarket given its above-average property quality and finishes, with in-place rental rates for market units averaging $4,914 and $4,482 for 416 Kent and 420 Kent, respectively. The in-place rent for the smaller subset of affordable units averages $1,135 and $996 as of the March 2025 rent roll.

For the purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from the prior review in August 2024. At that time, Morningstar DBRS analyzed the collateral under both a base-case and stressed scenario to evaluate the potential for credit rating upgrades given the overall healthy performance of the underlying collateral, as evidenced by the sustained increase in cashflow from issuance. In both scenarios, a 6.25% capitalization rate was applied. The base-case scenario, which was based on a standard surveillance haircut to the YE2023 NCF, resulted in a base-case Morningstar DBRS Value of $452.1 million (loan-to-value ratio (LTV) of 65.9%). In the stressed scenario, which included a 20% haircut to the YE2023 NCF, Morningstar DBRS derived a value of $369.0 million (LTV of 80.8%), a -43.0% variance from the appraised value at issuance of $647.0 million and a 5.9% variance from the Morningstar DBRS Value derived at issuance. The LTV sizing benchmarks resulting from the stressed analysis indicated that credit rating upgrades were not warranted. However, should cash flow continue to trend upward, Morningstar DBRS notes that credit rating upgrades may be warranted in the future, as suggested by the Positive trends. As a result of the collateral's strong rental-rate growth, above-average property quality, and location in a high-growth market, Morningstar DBRS maintained positive qualitative adjustments totaling 10.0% to the final LTV sizing benchmarks to account for cash flow volatility, 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 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 (May 16, 2025) at https://dbrs.morningstar.com/research/454196

Class X is an 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 17g-7 disclosure report and/or the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

As applicable, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS Limited
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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 Commercial Mortgage Servicer Rankings (August 23, 2024),
https://dbrs.morningstar.com/research/438283

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024) https://dbrs.morningstar.com/research/439702

North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025)
https://dbrs.morningstar.com/research/448962

Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025)
https://dbrs.morningstar.com/research/450750

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.