DBRS Morningstar Assigns Ratings to MAD 2015-11MD Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2015-11MD issued by MAD 2015-11MD (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (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 May 15, 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upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings.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.

This transaction is secured by the borrower’s fee, leasehold, and reversionary interest in the condominium units for 11 Madison Avenue, a Class A, 29-story, 2.3 million square foot (sf) office tower in Manhattan’s Midtown South submarket. The building is between 24th and 25th Streets, occupying an entire city block that overlooks Madison Square Park.

The borrower used the 10-year $1.08 billion interest-only (IO) loan to acquire the property. The trust debt totals $708.2 million, which is split between senior debt totaling $397.5 million and junior subordinate debt totaling $310.7 million. The whole-loan balance includes a $366.8 million senior companion loan that is pari passu with senior trust debt notes. There is also a $325 million mezzanine loan that is coterminous with the mortgage trust. SL Green Realty Corp. (SLG) is the mortgage loan sponsor and guarantor.

The top three tenants occupy over 85.0% of the total leasable space in the property with minimal near-term lease rollover. The largest tenant at the property is Credit Suisse, occupying 52.0% of the space, which serves as one of its regional headquarters. Credit Suisse’s lease at the property expires in May 2037 with termination options that the company may exercise from 2022 through 2037. The second-largest tenant is Sony Corporation of America (Sony Corporation), accounting for 25.0% of the space, which serves as its U.S. headquarters and as the global headquarters of Sony Music Entertainment. Sony Corporation’s lease expires in January 2031. The third-largest tenant is Yelp, accounting for 8.4% of the space. Yelp’s lease expires in April 2025, five months prior to maturity. In 2017, Yelp expanded its space by 39,565 sf and has invested over $20 million in capital expenditures since 2014.

The DBRS Morningstar net cash flow (NCF) derived at issuance was reanalyzed 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 $102 million and a cap rate of 6.5% was applied, resulting in a DBRS Morningstar Value of $1.57 billion, a variance of 32.2% from the appraised value at issuance of $2.35 billion. The DBRS Morningstar Value implies an LTV of 68.5% compared with the LTV of 45.7% on the appraised value at issuance. The NCF figure applied as part of the analysis represents a -5.1% variance from the Issuer’s NCF, primarily driven by vacancy, rent steps, and management fee. As of YE2019, the servicer reported a NCF figure of $114.3 million, a 12.1% variance from the DBRS Morningstar NCF figure, primarily a factor of base rent, rent steps, and management fee.

DBRS Morningstar applied a cap rate at the middle end of the DBRS Morningstar Cap Rate Ranges for Midtown Manhattan office properties, reflecting the prime location and solid tenant base. In addition, the 6.5% cap rate DBRS Morningstar applied is substantially above the implied cap rate of 4.6% 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 5% to account for cash flow volatility, property quality, and market fundamentals.

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.

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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