DBRS Morningstar Confirms All Classes of DBGS 2019-1735 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates issued by DBGS 2019-1735 Mortgage Trust (the Issuer) as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The $311.4 million first-lien mortgage loan is secured by the fee-simple interest in a 53-story Class A office building totaling 1.3 million square feet (sf) in the Philadelphia central business district (CBD). The 10-year loan matures in April 2029. The sponsor, Silverstein Properties, Inc., used loan proceeds along with $164.2 million of cash equity to acquire the asset for $451.6 million.

Built in 1990, 1735 Market Street is located on 18th Street between Market Street and JFK Boulevard with direct concourse access to SEPTA’s Suburban Station and a 176-space parking garage. The subject property is in the Market Street West submarket, which is the largest office submarket in Philadelphia with approximately 39 million sf of office space. According to Reis, the submarket reported a vacancy of 8.5% and average rental rate of $32.88 per sf gross as of Q1 2021. The collateral achieves higher rental rates as it is considered one of the top two multitenant office buildings in the Philadelphia CBD, along with One Liberty Place.

The tenant mix primarily consists of law firms and financial companies. The largest tenant at the property is Ballard Spahr LLP, which leases 15.4% of the gross leasable area through January 2031. The remaining tenant roster is relatively granular, as no other tenant occupies more than 8% of net rentable area (NRA). The second-largest tenant, Willis Towers Watson (7.6% of NRA), is leased through February 2031, while the third-largest tenant, Montgomery McCracken Walker (5.9% of NRA), is leased through 2034. Three of the four largest tenants (Ballard Spahr LLP, Montgomery McCracken Walker, and Brandywine Global Investment) have their headquarters at the collateral property. The property also benefits from minimal rollover concerns as the five largest tenants, representing 38.8% of NRA, have lease expiration that expire beyond the loan term.

The property has benefited from positive leasing momentum in recent years as Willis Towers Watson relocated from 1500 Market Street and signed a lease for 97,448 sf in 2020. Furthermore, international law firm Akin Gump signed a 16-year lease totaling 30,000 sf in 2020, while national law firm BakerHostetler signed a 16-year lease for 45,121 sf that is scheduled to commence in late 2021. This leasing momentum led to an increase in net cash flow (NCF) in 2020 relative to the Issuer's NCF.

The sponsor is launching a $20 million capital improvement program that will redesign the building’s lobby, front entrance, amenity spaces, and common areas as well as the concourse. Construction is expected to commence in Q2 2021. The property was 84% occupied as of YE2020 with a debt service coverage ratio of 2.42 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 interest-only (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 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. 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.

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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