DBRS Morningstar Confirms All Classes of COMM 2016-667M Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-667M issued by COMM 2016-667M Mortgage Trust as listed below:

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

All trends are Stable.

The loan is secured by a Class A trophy office property in Midtown Manhattan at the corner of Madison Avenue and 61st Street, one block east of Central Park. The property was built in 1985 and consists of 248,667 square feet (sf) of office space and 16,681 sf of retail space. The $254.0 million whole loan is interest only (IO) for the entirety of its 10-year term and served to refinance existing debt. This transaction consists of a $214.0 million trust loan, part of a $254.0 million whole loan that also consists of an additional senior $40.0 million A-2 pari passu note that was contributed to the CD 2016-CD2 transaction, not rated by DBRS Morningstar. The loan is sponsored by Hartz Financial, a subsidiary of Hartz Group, Inc., one of the largest privately held, full-service real estate companies in the U.S.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. As of the September 2021 rent roll, the property reported an occupancy rate of 91.3% with an average gross rent of $180 per square foot (psf), compared with the YE2020 occupancy rate of 85.3% and average rental rate of $173 psf. Since the last review, leases were executed with two new tenants, totaling 6.2% of the net rentable area (NRA), which were still in rent abatement as of September 2021. The property has a diverse rent roll with the largest tenant, Loews Corporation (Loews), representing 15.5% of the NRA with a lease expiry in May 2024 and the second-largest tenant, Servcorp Madison (Servcorp), occupying 11.5% of the NRA with a lease expiry in June 2024. Servcorp is a coworking company under a management and service agreement allowing the borrower to collect a portion of the company’s operations. There is no base rental income collected from Servcorp and collections are variable depending on the tenant’s performance, which has been below the borrower’s budgeted projections primarily as a result of the Coronavirus Disease (COVID-19) pandemic.

The loan was placed on the servicer’s watchlist in October 2019 because of a large water main break that damaged the property’s electrical and elevator systems and resulted in all tenants receiving rent abatements. According to the servicer, restoration was completed with all the tenants resuming full rents by mid-2020. The servicer reported a debt service coverage ratio (DSCR) of 2.26 times (x) for the trailing-nine-month (T-9) period ended September 30, 2021, up from 1.93x at YE2020 and 1.71x at YE2019. On an annualized basis, the T-9 effective gross income (EGI) of $41.1 million was just below the DBRS Morningstar-derived EGI of $42.2 million and is expected to trend upward given recent leasing activity.

According to a Q4 2021 Reis report for the Plaza submarket, the average asking rent and average vacancy rate for office space were $100 psf and 11.2%, respectively. Vacancy rates are projected to remain stable in the near and medium term, while average asking rents will gradually increase. Although in-place cash flows have declined since issuance and the property has exposure to two tenants likely significantly affected by the pandemic in Loews and Servcorp, the property’s trophy status and strong sponsorship are considered mitigating factors. In addition, the DSCR remains healthy and the sponsor continues to inject additional capital into the property. The August 2021 servicer’s site inspection report noted that $2.1 million of capital expenditure improvements were conducted in 2020 and 2021.

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-A is an 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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 4, 2022), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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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