DBRS Morningstar Confirms Four Classes of BBCMS Mortgage Trust 2020-C6, Removes Under Review with Developing Implications Status

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following nonpooled rake bonds of the Commercial Mortgage Pass-Through Certificates, Series 2020-C6 issued by BBCMS Mortgage Trust 2020-C6, which are backed by the $112.6 million subordinate B note of the Class F5T Certificates:

-- Class F5T-A at A (low) (sf)
-- Class F5T-B at BBB (low) (sf)
-- Class F5T-C at BB (low) (sf)
-- Class F5T-D at B (low) (sf)

All trends are Stable. The ratings have been removed from Under Review with Developing Implications, where they were placed on February 19, 2020.

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.

Prior to the finalization of the NA SASB Methodology, the DBRS Morningstar ratings for the subject transaction and all other DBRS Morningstar-rated transactions subject to the methodology in question were previously placed Under Review with Developing Implications, as the proposed methodology changes were material.

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 rake bonds are directly tied to the F5 Tower loan, which is secured by a 515,518-square-foot (sf) office property in downtown Seattle. The $185.0 million A note, combined with a $112.6 million subordinate B note, a $48.5 million mezzanine loan, and $117.8 million of borrower equity financed the $458.0 million purchase price and covered $5.2 million in closing costs. The loan is a 13-year fixed-rate interest-only loan with an anticipated repayment date at the end of year 10.

The collateral resides in a 48-story mixed-use high-rise building that was constructed in 2019. The 43-story building contains a 259-space subterranean parking garage, a 189-key luxury full-service hotel, and 515,518 sf of office space. The collateral for the loan is the office portion of the mixed-use, high-rise building, which is 100.0% leased by F5
Networks, Inc. (F5 Networks). F5 Networks is a leading global technology company that focuses on delivery, security, performance, and availability of web applications. The subject is deemed mission critical because it serves as F5 Networks’ headquarters and the tenant is investing an additional $100 per sf (psf) of its own capital to build out its space.

F5 Networks has a termination option for the leased space on the two highest floors, totaling 33,548 sf, between September 30, 2025, and September 30, 2026, subject to a delivery of notice no later than 12 months prior to the contraction date and a termination fee. Additionally, the tenant has a termination option for the entire leased space on October 1, 2030, subject to a delivery of notice no later than March 1, 2029, and a termination fee. F5 Networks’ lease commenced on April 1, 2019, with an initial lease term of 14.5 years with three five-year extension options, one partial termination option, and one termination option. F5 Networks’ lease is structured with 2.5% annual rental rate
increases and a $100 psf tenant improvement allowance. DBRS Morningstar conducted an internal assessment of F5 Networks and concluded that the tenant was investment grade.

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 $20.1 million and DBRS Morningstar applied a cap rate of 6.50%, resulting in a DBRS Morningstar Value of $309.0 million, a variance of -34.3% from the appraised value of $470.0 million at issuance. The DBRS Morningstar Value implies an LTV of 96.3% based on the $185.0 million A note and $112.6 million B note compared with the LTV of 63.3% on the appraised value at issuance. The NCF figure applied as part of the analysis represents a -13.1% variance from the Issuer’s NCF, primarily driven by differences in rent steps and leasing costs. As of the trailing 12-month period ended March 31, 2020, the servicer reported a NCF figure of $23.2 million, a 13.5% variance from the DBRS Morningstar NCF figure, primarily driven by lower in-place vacancy and lower leasing costs assumed in the servicer’s analysis.

The cap rate DBRS Morningstar applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for office properties, reflecting the property’s superior quality, favorable location, and occupancy to a private credit-rated tenant on a long-term lease. In addition, the 6.50% cap rate DBRS Morningstar 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 6.0% 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 (March 1, 2020) and North American CMBS Surveillance Methodology (March 6, 2020), 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.

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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