DBRS Morningstar Confirms Ratings on All Classes of COMM 2020-SBX Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of COMM 2020-SBX Mortgage Trust Commercial Mortgage Pass-Through Certificates issued by COMM 2020-SBX Mortgage Trust as follows:

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

All trends are Stable

The transaction is collateralized by the borrowers’ fee-simple interest in the Starbucks Center, a 1.4 milion sf, Class A office building and the adjacent 108,000 sf Home Depot located in the SODO submarket of Seattle (two miles south of the Seattle CBD). The collateral also includes two seven-story parking structures. The office component serves as the global headquarters for the Starbucks Corporation (Starbucks) and benefits from that long-term, institutional-grade tenancy with a lease that expires in September 2038 and includes three 7.5-year lease extensions options remaining.

Since relocating its corporate headquarters to the subject location in 1993, Starbucks has expanded more than 60 times, growing from 60,000 sf to its current footprint of 1.3 million sf. Since 2015, Starbucks has spent approximately $128.0 million in capital expenditures for build-outs, lobby renovations, amenities, and other projects. Starbucks’ current rental rate of $8.52 per sf (psf) and the stepped-up rental rate of $28.17 psf, which takes effect in November 2025, are well below Reis’s Central Seattle submarket asking rent of $44.18 psf as of Q2 2021. A key variable of Starbucks’ early expansion plan in 1995 with the sponsor was that Starbucks would the lease warehouse space at a low rental rate with the requirement that it would fund any building system and tenant improvements. The collateral’s other major tenant, The Home Depot, which leases 100% of the retail component, has a lease expiration of January 2024. The lease includes two five-year extension options. The subject serves as the retailer’s only location in downtown Seattle.

The borrower sponsor for the transaction, SODO Center, Inc. (SODO Center), used loan proceeds to repatriate approximately $170.2 million of equity. The borrower is indirectly wholly owned by SODO Center, which is controlled by Peter P. Nitze (President and Chairman of Nitze-Stagen & Company, Inc.) and Kevin Daniels (President of Daniels Real Estate, LLC).

The full-term interest-only (IO) loan has an anticipated repayment date (ARD) of November 2025 and a final maturity date of November 2028. The ARD structure of the loan, which requires that all net cash flow (NCF) after debt service be applied to the principal during a three-year tail, coupled with Starbucks’ lease term relative to the ARD and stated maturity, reduces maturity default risk.

The loan is performing in line with issuance expectations. As of the June 2021 reporting, the property was 100% occupied with an annualized NCF of $38.6 million and an in-place debt service coverage ratio of 3.82 times.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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