DBRS Morningstar Confirms Ratings on Morgan Stanley Capital Barclays Bank Trust 2016-MART

DBRS Limited (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates issued by Morgan Stanley Capital Barclays Bank Trust 2016-MART (the Trust) as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-NCP at BBB (high) (sf)
-- Class D at BBB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. The loan is secured by a 3.7 million-square-foot (sf) 24-story Class B mixed-use building known as Merchandise Mart situated on the bank of the Chicago River in the River North neighborhood of downtown Chicago. The Leadership in Energy and Environmental Design Gold-certified building offers an extensive amenities package that consists of hundreds of premier showrooms, flexible and spacious floor plates, 325 surface and subterranean garage parking spaces, and various retail tenants. Additionally, the property is directly accessible to the train platform for two Chicago Transit Authority elevated train lines. At issuance, the collateral contained roughly 2.0 million sf of office space, 1.3 million sf of showroom space, 214,545 sf of trade show space, 84,507 sf of retail space, and 21,227 sf of storage space. Given the decline in demand for showroom space, some of the showroom space was repurposed and now the property’s office and retail portion of the building has grown to 66.1% of net rentable area (NRA). The $675.0 million loan is split into the $550.0 million Trust loan and the $125.0 million pari passu companion loan held outside the Trust. The five-year loan is interest-only (IO) throughout with an upcoming loan maturity in September 2021.

According to the December 2020 rent roll, the property was 90.9% occupied with an average rental rate of $41.10 per sf (psf), a slight decrease over the occupancy rate of 94.6% at December 2019 and the December 2018 occupancy rate of 94.0%. The tenant profile is considered strong as three of the six largest tenants (25.2% of NRA) are investment-grade rated. The largest tenant is Motorola Mobility LLC (Motorola), which leases a total of 16.6% of the NRA, with a scheduled lease expiration date in August 2028. Motorola has been subleasing significant portions of its space since 2015 as the company continues to downsize. Although Motorola is no longer owned by Google LLC (Google), Motorola’s lease continues to be guaranteed by Google until its lease expiry in August 2028. Motorola has a termination option in September 2023, which is subject to a fee of $89.00 psf, or $54.2 million. Other major tenants at the property include MTS-MM LLC, which occupies a total of 6.1% of the NRA with a scheduled lease expiration in December 2025, and Conagra Brands, Inc., which occupies 4.6% of the NRA with a scheduled lease expiration in May 2031. Furthermore, PayPal Holdings, Inc. occupies 4.0% of the NRA with a new scheduled lease expiration in September 2032. Over the next 12 months there is upcoming lease rollover risk of 8.7% of the NRA; most notably, Sapient Corporation, which represents 2.1% of total NRA, has a lease expiry of December 2021.

According to the year-end (YE) 2020, financials, the debt service coverage ratio (DSCR) was 4.51 times (x) compared with the YE2019 and YE2018 DSCRs of 4.84x and 3.94x, respectively. The decline in DSCR from YE2019 to YE2020 is attributable to a 84.3% increase in real estate taxes from YE2017 to YE2018. The borrower was able to fully recapture the increased common area maintenance costs in 2019, which increased its expense reimbursement line item at that time and has now normalized in the YE2020 financials.

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-NCP 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 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. 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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