DBRS Morningstar Confirms Ratings on Independence Plaza Trust 2018-INDP

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-INDP issued by Independence Plaza Trust 2018-INDP:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-ECP at B (high) (sf)
-- Class X-ENP at B (high) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The ratings confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The collateral for the transaction consists of the fee and leasehold interests in a 1.5 million-square foot (sf) mixed-use residential and commercial complex located in the Tribeca neighbourhood of Manhattan in New York. The property consists of three 39-storey apartment towers and connecting townhomes in addition to commercial space. The towers are at 310 Greenwich Street, 40 Harrison Street, and 80 North Moore Street. The fee interest covers the entire property, while the leasehold interests relate to three parcels: the South Podium, North Podium, and Tower Development, which contain a mix of parking, retail, and apartment units. Collateral for the loan consists of both the fee and leasehold interests. Loan proceeds of $675 million were used to retire outstanding debt of $551.6 million (comprising a $444.0 million commercial mortgage-backed security mortgage loan securitized in BAMLL 2014-IP and a $110.0 million mezzanine loan), return $112.8 million of equity to the sponsor, and cover closing costs of $10.6 million.

The property was originally built in 1975 under the Mitchell-Lama Housing Program of New York State, an affordable-housing initiative for lower- and middle-income families. The property exited the program in June 2004, at which time the borrower offered the Landlord Assistance Program to any tenants not qualifying for the Section 8: Enhanced Vouchers program. Management has been able to increase value by renovating rent-regulated apartments as they become available and re-leasing them at market rents following a significant renovation. The borrower intends to continue this strategy as additional units turn over.

As of the December 2020 rent roll, the residential portion of the property was 86.0% occupied at an average rental rate of $3,445 per unit, trailing the September 2019 occupancy rate of 95.9%. The servicer did not confirm the reason for the decline in occupancy; however, it may be attributed to the ongoing coronavirus pandemic. The servicer did note that, as of May 2021, the borrower reported an increase in leasing momentum on the residential units. According to the Q1 2021 Reis market report, the average asking rent for the West Village/Downtown New York Metropolitan submarket was $4,282 per unit with an average vacancy rate of 5.5%. As of May 2021, the servicer noted that the retail occupancy rate was 88.4% with no recent tenant rollover and, as such, retail occupancy remains in line with the September 2019 figure. Retail occupancy had previously declined from the March 2018 rent roll when the commercial portion of the property was 95.6% occupied at an average rental rate of $22.73 per square foot (psf). Patriot Parking Inc., the largest commercial tenant, occupies 75.6% of the commercial net rentable area (NRA) and leases the entire 550-space parking garage through August 2024 at a rental rate of $18.83 psf.

As of May 2021, the servicer confirmed that Best Market (7.3% of the commercial NRA) vacated its space upon its October 2018 lease expiration but Public School 150 (6.2% of the commercial NRA) extended its lease by three years from its original lease expiration in July 2019. Reportedly, the borrower plans to renovate the formerly occupied Best Market space and is targeting an increase in rental rates to approximately $200 psf from $22.70 psf, with renovations ongoing as of May 2021. While a renovation and retrofit of the retail footprint may bring tenants that better complement the current tenant base, the loan has been structured in a way that eliminates the upside potential from the credit perspective. The three leasehold parcels, which contain all of the retail and parking, can be released, subject to the repayment of a portion of the loan, based on a release price formula anchored to the greater of in-place cash flow attributable to the released parcel or the cash flow of such parcel at the time of release. As such, the borrower would be incentivized to release the parcels prior to restabilization and leverage them separately.

According to the December 2020 financials, the debt service coverage ratio (DSCR) was 1.36 times (x) compared with the DBRS Morningstar Term DSCR derived at issuance of 1.49x.

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

Classes X-CP, X-NCP, X-ECP, and X-ENP are interest-only (IO) certificates that reference 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 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 methodology is the 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 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.

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