DBRS Morningstar Changes Trends to Stable from Negative, Confirms Ratings on All Classes of SFAVE 2015-5AVE

DBRS Limited (DBRS Morningstar) confirmed the 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)

DBRS Morningstar changed the trends on all classes to Stable from Negative. These changes, along with the rating confirmations, reflect the overall improved outlook for the transaction, given the loan sponsor’s recent partnership with Convene, a flexible workspace and event space provider, as well the recent investment in the collateral property with a capital improvement project of $250 million.

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 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 owns the Saks Fifth Avenue brand. The sponsor bifurcated the land and improvements as part of this 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. 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 $160.0 million in annual rent with an abatement of up to $20.0 million for capital improvements. The annual rent of 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 YE2021 financial reporting, the collateral reported a net cash flow (NCF) of $73.5 million, in line with the YE2020 NCF figure, with a YE2021 debt service coverage ratio (DSCR) of 1.32 times (x), consistent with YE2020 DSCR of 1.32x. Based on the minimum fixed annual ground rent schedule, the base rent in 2022 is expected to be $75.6 million with an estimated DSCR of 1.36x.

The property benefits from a capital improvement project, completed in September 2021, featuring new layouts that accommodate upgraded infrastructure, a new escalator that connects to the street level, and the addition of a high-end jewelry experience known as The Vault. In August 2021, HBC announced a partnership with WeWork, which resulted in HBC converting some of its Saks footprint into coworking spaces known as SaksWorks. The coworking locations include the subject property, where one floor of the Saks space was converted to SaksWorks use. In April 2022, according to the Wall Street Journal, HBC executed a $500 million deal with Convene, taking majority stake in that company. The Wall Street Journal reported that all of HBC’s existing and future SaksWorks locations will be combined with and eventually be rebranded under Convene. In general, these events are viewed as a positive development for HBC and the subject transaction overall, as they display HBC’s willingness to pivot and invest in strategies that will make the most of its commercial real estate portfolio. Coworking has enjoyed a rise in demand and general interest amid the pandemic, which has highlighted the need for more flexibility for office space users of all industries and sizes.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929.

Class X-A 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.

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

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans 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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 4, 2022), 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.

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@dbrsmorningstar.com.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577