DBRS Morningstar Assigns Ratings to COMM 2019-521F Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned ratings to the COMM 2019-521F Mortgage Trust, Commercial Mortgage Pass-Through Certificates issued by COMM 2019-521F Mortgage Trust (the Issuer) as follows:

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

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about July 31, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

The collateral for the COMM 2019-521F Mortgage Trust is a $242.0 million first-lien mortgage loan secured by a 39-story Class A office building in New York that was built in 1929. The sponsor, Savanna Capital Partners (Savanna), acquired the property on May 22, 2019, for $381.0 million. The 495,636-square foot (sf) building has three underground levels and multilevel retail space. The 521 Fifth Avenue building sits at the northeast corner of East 43rd Street, which is within the Grand Central office submarket per Reis. The property is a short distance from Grand Central Terminal, Bryant Park, and the New York City Public Library.

The building offers efficient and flexible floor plates with outdoor terraces that appeal to both large and boutique tenants. Tenants can enter the office space using the main office lobby along 43rd Street, which provides additional access to the two side-street retail tenants within the property. The office floor plates range in size from 3,000 sf to 22,500 sf. The property also has eight setback outdoor terraces on the fifth, 14th, 16th, 19th, 22nd, 24th, and 37th floors. Urban Outfitters occupies the prime Fifth Avenue retail space on the ground floor. Equinox and Cazzolina Restaurant occupy the side-street retail suites. Equinox is on the ground floor, lower level, and sub-lower level. Its space includes internal staircases and an elevator. Starting March 22, 2020, at 8 p.m., an executive order went in effect, shutting down all nonessential services in New York because of the Coronavirus Disease (COVID-19) pandemic which affected the subject’s retail tenancy, including Urban Outfitters and Equinox. Although Urban Outfitters was closed for a period of time, it reopened in June 2020 with limited capacity. Equinox was still closed as of June 2020; however, DBRS Morningstar believes they will reopen once allowed to by local government officials. As of June 2020, DBRS Morningstar did not receive any updates on the status of the Cazzolina Restaurant.

At origination, Savanna planned to invest $16.1 million for improvements that will include renovations to the lobby, bathroom, common corridor, outdoor terrace, and storefront, as well as upgrades to the canopy and property signage. Savanna also intends to apply for the Industrial & Commercial Abatement Program in connection with the renovation. DBRS Morningstar’s analysis does not include any future tax abatement benefit.

The subject’s largest tenant by rent is the clothing retailer Urban Outfitters, which occupies 9,644 sf on the ground level and 12,525 sf on the second level. The Urban Outfitters lease commenced on August 1, 2010, and expires on February 28, 2026, plus two five-year extension options. The largest tenant by square footage is Equinox, which occupies 26,914 sf of primarily below-ground level retail space. Retail tenancy combined represents approximately 17.4% of the DBRS Morningstar gross potential rent. No other tenant represents more than 5.0% of the net rentable area.

Per Reis, the collateral is in the Grand Central submarket, which is part of the greater New York Metro office market. Reis reported a submarket vacancy rate of 7.7% and asking rental rate of $80.51 per sf (psf) for Q1 2020, but forecast the submarket vacancy rate to increase to 10.5% and the asking rent to decrease to $72.45 psf by 2024. The Class A office properties within the submarket for Q1 2020 exhibited a vacancy rate of 7.0% and asking rate of $91.80 psf, which compares favorably with the general office submarket. The property benefits from its location in a strong office market and proximity to restaurants, retail development, schools, and community facilities. The subject has strong accessibility and is well served by an extensive network of streets, thoroughfares, and New York City’s public transportation system.

The DBRS Morningstar net cash flow (NCF) derived at issuance was re-analyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The resulting NCF figure was $17.1 million and a cap rate of 6.5% was applied, resulting in a DBRS Morningstar Value of $262.3 million, a variance of -33.6% from the appraised value at issuance of $395.0 million. The DBRS Morningstar Value implies an LTV of 92.3%, as compared with the LTV on the issuance appraised value of 61.3%. The NCF figure applied as part of the analysis represents a -12.3% variance from the Issuer’s NCF, primarily driven by leasing costs and vacancy.

The cap rate applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for Office properties, reflective of the location, market position, and quality. In addition, the 6.5% cap rate applied is above the implied cap rate of 4.92% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 4.5% to account for cash flow volatility, property quality, and market fundamentals.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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