DBRS Morningstar Confirms Ratings on MAD 2015-11MD Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of MAD 2015-11MD Mortgage Trust, Commercial Mortgage Pass-Through Certificates issued by MAD 2015-11MD Mortgage Trust:

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

All trends are Stable.

The rating confirmations reflect the stable overall performance of the transaction since last review. The transaction represents a portion of a 10-year, $1.08 billion interest-only loan obtained by the borrower to obtain the fee, leasehold, and reversionary interest in the condominium units for 11 Madison Avenue, a Class A, 29-story, 2.3 million-square-foot (sf) office tower in Manhattan’s Midtown South submarket. The building is between 24th Street and 25th Street, occupying an entire city block that overlooks Madison Square Park.

The trust debt totals $708.2 million, which is split between senior debt totaling $397.5 million and junior subordinate debt totaling $310.7 million. The whole-loan balance includes a $366.8 million senior companion loan that is pari passu with senior trust debt notes. There is also a $325 million mezzanine loan that is co-terminous with the mortgage trust. The sponsor and guarantor, SL Green Realty Corp., is one of Manhattan’s largest office landlords and has substantial experience in ownership and management, reporting interests in 73 buildings totaling 34.9 million sf as of December 2021.

The top three tenants occupy more than 85.0% of the total leasable space in the property with minimal near-term lease rollover. The largest tenant at the property is Credit Suisse, occupying 53.5% of the space, which serves as one of its regional headquarters. Credit Suisse’s lease at the property expires in May 2037 with termination options that the company may exercise to vacate a single full floor in each of 2022, 2027, and 2032. Credit Suisse exercised their termination right effective in 2022 for the 13th floor, totaling 3.5% of net rentable area, with the servicer reporting that the $6.1 million termination fee is to be collected and deposited into a reserve account. Credit Suisse AG is rated “A” with a Negative trend by DBRS Morningstar, and Credit Suisse Group AG (the top-level holding company) is rated A (low) with a Negative trend by DBRS Morningstar. For more information on these ratings, please see the following press release: https://www.dbrsmorningstar.com/research/376576.

The second-largest tenant is Sony Corporation of America (Sony), accounting for 24.4% of the space, which serves as its U.S. headquarters and as the global headquarters of Sony Music Entertainment. Sony’s lease expires in January 2031. The third-largest tenant is Yelp, accounting for 8.1% of the space on a lease that expires in April 2025, five months prior to maturity. The December 2021 rent roll showed the property’s occupancy rate increased to 100% from 96.0% as of June 2020 after Jim Beam Brands Co. executed an 11-year lease that commenced in January 2021.

The DBRS Morningstar net cash flow (NCF) derived when assigning ratings was $102.0 million. As of YE2021, the NCF totaled $129.3 million, up 13.2% from the $114.3 million YE2020 NCF. The primary driver for the improvement was an $8.3 million real estate tax reduction. Given the Coronavirus Disease (COVID-19) pandemic’s effect on real estate values, the lower tax figure is likely the result of a lower assessment. According to a June 2021 article by Bloomberg, New York expected a 5% year-over-year decline in property tax revenues for the fiscal year starting July 1, 2021. The DBRS Morningstar value of $1.57 billion implies an LTV of 68.5%, compared with the LTV of 45.7% on the appraised value at issuance. Given the property quality and location, as well as the strong historical performance and high in-place occupancy rate, DBRS Morningstar believes there remains significant cushion against a pandemic-driven value decline, supporting the rating confirmations with this review.

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.

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 Morningstar 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.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429